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Thirty Years of Shareholder Rights and Firm Value




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    • Martijn Cremers is at University of Notre Dame. Allen Ferrell is the Greenfield Professor of Securities Law at Harvard Law School. For helpful comments, we are grateful to an anonymous referee and Associate Editor, Reena Aggarwal, Lucian Bebchuk Bernie Black, Harvey Campbell (the Editor), John Coates, Alma Cohen, Robert Daines, Shane Johnson, András Marosi, Andrew Metrick, Ted Moorman, Randall Morck, Warren Stern, Leo Strine, and seminar participants at the AFA meetings, the Harvard Law, Economics, and Organization Research Workshop, the Corporate Governance Research Conference organized by Harvard Law School/Sloan Foundation, the Financial Crisis and Corporate Governance Conference at Ono Academic College, the MIT finance workshop, the NBER Law & Economics Conference, the Frontiers of Finance conference in Banff, the Einaudi Institute for Economics and Finance in Rome, Dartmouth College, the University of Illinois, the IMF, the University of Pennsylvania, the University of Virginia, and Yale University. We would like to thank Harvard Law School, the John M. Olin Foundation in Law, Economics, and Business at Harvard Law School, Yale's Millstein Center for Corporate Governance and Performance, and the Robert C. Clark Corporate Governance Fund for their generous financial support. We would also like to thank the Delaware Division of Corporations for its kind provision of charters, the Corporate Library for providing us their coding of state defaults, and our research assistants, Haroon Baryalay, Johnson Elugbadebo, Hui Liu, and Bing Shuai.


This paper introduces a new hand-collected data set that tracks restrictions on shareholder rights at approximately 1,000 firms from 1978 to 1989. In conjunction with the 1990 to 2006 IRRC data, we track shareholder rights over 30 years. Most governance changes occurred during the 1980s. We find a robustly negative association between restrictions on shareholder rights (using G-Index as a proxy) and Tobin's Q. The negative association only appears after judicial approval of antitakeover defenses in the 1985 landmark Delaware Supreme Court decision of Moran v. Household. This decision was an unanticipated exogenous shock that increased the importance of shareholder rights.