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Disloyal managers and shareholders’ wealth

Fich, E. M., Harford, J. & Tran, A. ORCID: 0000-0001-7090-8063 (2022). Disloyal managers and shareholders’ wealth. Review of Financial Studies, 36(5), pp. 1837-1888. doi: 10.1093/rfs/hhac070


The prohibition against fiduciaries appropriating business opportunities from their companies is a fundamental part of the duty of loyalty, the expectation of which is integral to U.S. corporate governance. However, starting in 2000, several states, including Delaware, allowed boards to waive this duty. Exploiting the staggered passage of waiver laws, we show that this weakening of fiduciary duty has significantly decreased public firms’ investment in innovation.Firms covered by waiver laws invest less in R&D, produce fewer and less valuable patents and exhibit abnormally high inventor departures. Remaining innovation activities contribute less to firm value, a fact confirmed by the market reaction when firms reveal their curtailed internal growth opportunities by announcing acquisitions. Consistent with the laws’ intent to provide contracting flexibility to emerging firms, we do find evidence of positive impacts for small firms.

Publication Type: Article
Additional Information: This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Financial Studies following peer review. The version of record Eliezer M Fich, Jarrad Harford, Anh L Tran, Disloyal Managers and Shareholders’ Wealth, The Review of Financial Studies, 2022 is available online at:
Publisher Keywords: Corporate opportunity waiver; Innovation; Marginal value of cash; Acquisitions; Firm value
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
[thumbnail of Fich Harford Tran 2023.pdf] Text - Accepted Version
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