Litigation Risk and Agency Costs: Evidence from Nevada Corporate Law Academic Article

abstract

• 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.

authors

• Yust, Christopher

published proceedings

• JOURNAL OF LAW & ECONOMICS

altmetric score

• 7.58

author list (cited authors)

• Donelson, D. C., & Yust, C. G.

citation count

• 40

complete list of authors

• Donelson, Dain C||Yust, Christopher G

publication date

• January 2014

publisher

• University Of Chicago Press  Publisher

published in

• The Journal of Law and Economics  Journal

keywords

• Agency Costs
• Litigation Risk
• Nevada
• State Corporate Law

Digital Object Identifier (DOI)

• 10.1086/675942

start page

• 747

end page

• 780

volume

• 57

issue

• 3

URL

• http://dx.doi.org/10.1086/675942