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- Publisher Website: 10.1086/700269
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Article: Shareholder Protection and the Cost of Capital
Title | Shareholder Protection and the Cost of Capital |
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Authors | |
Keywords | Corporate governance Boards Corporate boards |
Issue Date | 2018 |
Publisher | University of Chicago Press. The Journal's web site is located at http://www.journals.uchicago.edu/JLE |
Citation | The Journal of Law and Economics, 2018, v. 61 n. 4, p. 677-710 How to Cite? |
Abstract | Do shareholder protection laws affect the corporate cost of capital? To identify the causal impact of shareholder protection laws on firms’ implied cost of capital, we exploit the staggered adoption across 23 US states of universal-demand laws, which place significant obstacles to derivative lawsuits and thus undermine shareholders’ litigation rights. Using a sample of public US firms between 1985 and 2013, we find that weakened litigation rights for shareholders materially increase firms’ implied cost of capital. We further show that the curtailing of shareholders’ rights leads to a deterioration in information quality, increased risk-taking, and more severe insider expropriation, all of which contribute to heightened financing costs. Overall, our findings indicate that weakened litigation rights for shareholders lead them to face greater agency conflicts and higher market risk, which ultimately translates into higher required returns. |
Persistent Identifier | http://hdl.handle.net/10722/279018 |
ISSN | 2023 Impact Factor: 2.2 2023 SCImago Journal Rankings: 1.295 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Houston, JF | - |
dc.contributor.author | Lin, C | - |
dc.contributor.author | Xie, W | - |
dc.date.accessioned | 2019-10-21T02:18:07Z | - |
dc.date.available | 2019-10-21T02:18:07Z | - |
dc.date.issued | 2018 | - |
dc.identifier.citation | The Journal of Law and Economics, 2018, v. 61 n. 4, p. 677-710 | - |
dc.identifier.issn | 0022-2186 | - |
dc.identifier.uri | http://hdl.handle.net/10722/279018 | - |
dc.description.abstract | Do shareholder protection laws affect the corporate cost of capital? To identify the causal impact of shareholder protection laws on firms’ implied cost of capital, we exploit the staggered adoption across 23 US states of universal-demand laws, which place significant obstacles to derivative lawsuits and thus undermine shareholders’ litigation rights. Using a sample of public US firms between 1985 and 2013, we find that weakened litigation rights for shareholders materially increase firms’ implied cost of capital. We further show that the curtailing of shareholders’ rights leads to a deterioration in information quality, increased risk-taking, and more severe insider expropriation, all of which contribute to heightened financing costs. Overall, our findings indicate that weakened litigation rights for shareholders lead them to face greater agency conflicts and higher market risk, which ultimately translates into higher required returns. | - |
dc.language | eng | - |
dc.publisher | University of Chicago Press. The Journal's web site is located at http://www.journals.uchicago.edu/JLE | - |
dc.relation.ispartof | The Journal of Law and Economics | - |
dc.rights | The Journal of Law and Economics. Copyright © University of Chicago Press. | - |
dc.subject | Corporate governance | - |
dc.subject | Boards | - |
dc.subject | Corporate boards | - |
dc.title | Shareholder Protection and the Cost of Capital | - |
dc.type | Article | - |
dc.identifier.email | Lin, C: chenlin1@hku.hk | - |
dc.identifier.authority | Lin, C=rp01808 | - |
dc.description.nature | published_or_final_version | - |
dc.identifier.doi | 10.1086/700269 | - |
dc.identifier.scopus | eid_2-s2.0-85066120381 | - |
dc.identifier.hkuros | 308093 | - |
dc.identifier.volume | 61 | - |
dc.identifier.issue | 4 | - |
dc.identifier.spage | 677 | - |
dc.identifier.epage | 710 | - |
dc.identifier.isi | WOS:000468792800005 | - |
dc.publisher.place | United States | - |
dc.identifier.issnl | 0022-2186 | - |