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- Publisher Website: 10.1016/j.jcorpfin.2021.102022
- Scopus: eid_2-s2.0-85112578817
- WOS: WOS:000693225000037
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Article: Managerial Liability and Corporate Innovation: Evidence from a Legal Shock
Title | Managerial Liability and Corporate Innovation: Evidence from a Legal Shock |
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Authors | |
Keywords | Innovation Risk taking Legal liability Litigation risk Shareholder litigation Nevada |
Issue Date | 2021 |
Publisher | Elsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jcorpfin |
Citation | Journal of Corporate Finance, 2021, v. 69, article no. 102022 How to Cite? |
Abstract | Despite a longstanding debate over the pros and cons of imposing legal liability on directors and officers (D&Os), there is limited evidence on how D&O liability affects corporate innovation. We study this question by exploiting Nevada's 2001 corporate law change that dramatically lowered D&O legal liability and helped Nevada become the second most popular state for out-of-state incorporations. We find that firms incorporated in Nevada exhibit an increase in innovation outputs relative to matched control firms after the law change, particularly firms facing higher litigation risk or operating in more innovative industries. The results are driven mainly by exchange-listed firms that are subject to better governance than over-the-counter (OTC) listed firms. Lower D&O liability also enables firms to pursue more risky, but potentially more rewarding, explorative innovation. Therefore, although holding D&Os liable may be desirable overall, it also entails a cost by discouraging innovation in some firms. Our study has implications for how the litigation environment may influence sustainable growth via innovation. |
Persistent Identifier | http://hdl.handle.net/10722/300833 |
ISSN | 2021 Impact Factor: 5.107 2020 SCImago Journal Rankings: 1.894 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Guan, Y | - |
dc.contributor.author | Zhang, L | - |
dc.contributor.author | Zheng, L | - |
dc.contributor.author | Zou, H | - |
dc.date.accessioned | 2021-07-06T03:10:51Z | - |
dc.date.available | 2021-07-06T03:10:51Z | - |
dc.date.issued | 2021 | - |
dc.identifier.citation | Journal of Corporate Finance, 2021, v. 69, article no. 102022 | - |
dc.identifier.issn | 0929-1199 | - |
dc.identifier.uri | http://hdl.handle.net/10722/300833 | - |
dc.description.abstract | Despite a longstanding debate over the pros and cons of imposing legal liability on directors and officers (D&Os), there is limited evidence on how D&O liability affects corporate innovation. We study this question by exploiting Nevada's 2001 corporate law change that dramatically lowered D&O legal liability and helped Nevada become the second most popular state for out-of-state incorporations. We find that firms incorporated in Nevada exhibit an increase in innovation outputs relative to matched control firms after the law change, particularly firms facing higher litigation risk or operating in more innovative industries. The results are driven mainly by exchange-listed firms that are subject to better governance than over-the-counter (OTC) listed firms. Lower D&O liability also enables firms to pursue more risky, but potentially more rewarding, explorative innovation. Therefore, although holding D&Os liable may be desirable overall, it also entails a cost by discouraging innovation in some firms. Our study has implications for how the litigation environment may influence sustainable growth via innovation. | - |
dc.language | eng | - |
dc.publisher | Elsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jcorpfin | - |
dc.relation.ispartof | Journal of Corporate Finance | - |
dc.subject | Innovation | - |
dc.subject | Risk taking | - |
dc.subject | Legal liability | - |
dc.subject | Litigation risk | - |
dc.subject | Shareholder litigation | - |
dc.subject | Nevada | - |
dc.title | Managerial Liability and Corporate Innovation: Evidence from a Legal Shock | - |
dc.type | Article | - |
dc.identifier.email | Zou, H: hongzou@hku.hk | - |
dc.identifier.authority | Zou, H=rp01800 | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1016/j.jcorpfin.2021.102022 | - |
dc.identifier.scopus | eid_2-s2.0-85112578817 | - |
dc.identifier.hkuros | 323209 | - |
dc.identifier.volume | 69 | - |
dc.identifier.spage | article no. 102022 | - |
dc.identifier.epage | article no. 102022 | - |
dc.identifier.isi | WOS:000693225000037 | - |
dc.publisher.place | Netherlands | - |