Does Expanding Fiduciary Duties towards Debtholders Shift Focus to Long-Term Shareholder Value Creation?

نویسندگان

  • Sterling Huang
  • Jeffrey Ng
  • Sugata Roychowdhury
  • Ewa Sletten
  • Mark Bradshaw
  • Amy Hutton
چکیده

The 1991 Delaware court ruling involving Credit Lyonnais expanded the fiduciary duties of managers towards debtholders in the event that a firm is within the proximity of insolvency. Using a difference-in-differences approach that exploits this exogenous shock, we find that the 1991 ruling induced managers of Delaware firms ex ante to place a greater emphasis on investments that foster long-term innovation, and a reduced focus on achieving myopic earnings goals. Further, we find a shift away from transient to dedicated institutional ownership after the court ruling, along with significant declines in cost of equity and increases in Tobin s Q. Overall, our results indicate that the exogenous shock to the agency environment, ostensibly in favor of debtholders, influenced real decisions and firm focus. In the process, it also altered the composition of the shareholder base and was ultimately beneficial for shareholders. * Corresponding author This paper has benefited from comments by, and discussions with, Mark Bradshaw and Amy Hutton.

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

منابع مشابه

The Impact of the Agency Environment on Management’s Long-Term Focus

The 1991 Credit Lyonnais court ruling expanded the fiduciary duties of managers towards debtholders in near-insolvent Delaware firms. Differences-in-differences tests reveal that innovation efficiency increased among all Delaware firms following the ruling. Further, Delaware firms close to (far from) insolvency reduced (expanded) their R&D expenditures and innovation output. Both sets of firms ...

متن کامل

Fiduciary Duties and Equity‐Debtholder Conflicts

Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author. Abstract. We use an important legal event as a natural experiment to examine the effect of management fiduciary duties on equity‐debt conflicts. A 1991 Delawar...

متن کامل

Study of information content Equity Market Value in predicting Shareholder Value Added and Created Shareholder Value Evidence from Tehran Stock Exchange

The aim of this paper is to investigate the relationship between Equity Market Value (EMV) and measures of creation value of the performance evaluation (Shareholder Value Added (SVA) and Created Shareholder Value (CSV)) in Tehran Stock Exchange. Thus this paper examined the creation value in Iranian Companies by Alfred Rappaport model and to assess the relationship, liner regression tests w...

متن کامل

“Package Deal”: The Curious Relationship Between Fiduciary Duties and the Implied Covenant of Good Faith and Fair Dealing in Delaware Limited Liability Companies

Since 1977, the popularity of the limited liability company (“LLC”) has grown tremendously, overtaking the corporation and the partnership as the preferred business structure in many jurisdictions. Amidst this growth in popularity, a legal debate has sparked concerning the existence, nature, and extent of the fiduciary and contractual duties owed in the LLC context. Drafters of LLC agreements c...

متن کامل

On the Risk Situation of Financial Conglomerates: Does Diversification Matter?

In general, conglomeration leads to a diversification of risks (the diversification benefit) and to a decrease in shareholder value (the conglomerate discount). Diversification benefits in financial conglomerates are typically derived without accounting for reduced shareholder value, even though a comprehensive analysis requires competitive conditions within the conglomerate, i.e., shareholders...

متن کامل

ذخیره در منابع من


  با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

عنوان ژورنال:

دوره   شماره 

صفحات  -

تاریخ انتشار 2014