Corporate Governance: Creditor and Shareholder Monitoring
Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM
- Chair: Victoria Ivashina, Harvard Business School
Stakeholder Orientation and Firm Value
AbstractThis paper analyzes enhanced director discretion to consider stakeholder interests by exploiting
the quasi-natural experiment provided by the staggered adoption of directors’ duties laws in 35
U.S. states from 1984 to 2006. We find that these laws result in economically and statistically
significant increases in firm value, especially for firms that are larger, more complex or innovative
and with stronger stakeholder relationships. Our results suggest that enhanced director discretion
promotes long-term value by reducing contracting costs with stakeholders (the “bonding
hypothesis”) and mitigating the externalities that stakeholders may bear due to conflicts of interests
with shareholders (the “stakeholder model hypothesis”).
AbstractWe study the nature of and outcomes from coordinated engagements by a prominent international network of shareholder activists cooperating to influence firms on environmental and social issues. We find a two-tier engagement strategy, combining lead active investors with supporting investors, is effective in successfully achieving the stated engagement goals and subsequently improving target performance. An activist is more likely to lead the collaborative dialogue when its stake in the target firm is higher and when the target is domestic. Success rates are elevated when the lead investors are domestic, supporting investors are international, and the investor coalition is influential.
Litigating Innovation: Evidence from Securities Class Action Lawsuits
AbstractLow-quality securities class action lawsuits disproportionally target firms with valuable innovation output and impose a substantial implicit ``tax'' on these firms. We establish this fact using data on class action lawsuits against U.S. corporations between 1996 and 2011 and the private economic value of a firm's newly granted patents as a measure of valuable innovation output. Our results challenge the widely-held view that it is the greater failure propensity of innovative firms that drives litigation risk. Instead, our findings suggest that valuable innovation output makes a firm an attractive litigation target. More broadly, our results provide new evidence to support the view that the current class action litigation system may have adverse effects on the competitiveness of the U.S. economy.
- G3 - Corporate Finance and Governance