n132108SE Academic Article uri icon


  • 2014 by The University of Chicago. All rights reserved. In 2001, Nevada significantly limited the personal legal liability of corporate officers and directors. We use this exogenous shock to implement a differencesin- differences design that examines the impact of officer and director litigation risk on agency costs. We find decreased firm value, especially for firms with lower levels of investor protection and the highest expected agency costs. We also find that managerial incentives are reduced as measured by lower chief executive officers pay-for-performance sensitivity. Finally, we find an adverse impact on operating performance and increased error-based restatements for Nevada firms subsequent to the change. Our findings emphasize that officer and director litigation risk is an important governance mechanism.

published proceedings

  • The Journal of Law and Economics

author list (cited authors)

  • Donelson, D. C., & Yust, C. G.

publication date

  • January 1, 2014 11:11 AM