Hostname: page-component-84b7d79bbc-fnpn6 Total loading time: 0 Render date: 2024-07-29T01:20:57.215Z Has data issue: false hasContentIssue false
  • English
  • Français

Shareholder Wealth Effects of Directors' Liability Limitation Provisions

Published online by Cambridge University Press:  06 April 2009

Yaron Brook  and
Ramesh K. S. Rao
Get access Rights & Permissions [Opens in a new window]

Abstract

The adoption of liability limitation provisions (LLPs) is associated with insignificant stock price reactions for all firms, but with positive stock price reactions for poorly performing firms. This result is consistent with the hypothesis that the net benefit of LLPs is larger for financially troubled firms than for other firms because outside directors are valuable to the distressed firm and LLPs substantially affect experts' expected costs of serving as directors of troubled firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 29 , Issue 3 , September 1994 , pp. 481 - 497
Copyright
Copyright © School of Business Administration, University of Washington 1994

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Bennett, A. “Hot Seats: Board Members Draw Fire and Some Think Twice about Serving.” Wall Street Journal (02 5, 1986).Google Scholar
Bhagat, S.; Brickley, J. A.; and Coles, J. L.. “Managerial Indemnification and Liability Insurance: The Effect on Shareholder Wealth.” Journal of Risk and Insurance, 54 (4, 1987), 721–736.CrossRefGoogle Scholar
Brown, M. M. “When the Corporation is Financially Troubled, Director's Role Changes,” special section on Corporate Counsel. National Law Journal (05 20, 1991), S 10.Google Scholar
Brown, S. J., and Warner, J. B.. “Using Daily Stock Returns in Event Studies.” Journal of Financial Economics (1985), 3–31.Google Scholar
Cottingham, J. A. “The D&O Insurance Crisis: Darkness at the End of the Tunnel.” Insurance Law Anthology, 39 (1987), 633–685.Google Scholar
Davis, L. U. Jr; McCullough, B.; McNulty, E. P.; and Schuler, R. W.. “Corporate Reorganization in the 1990s: Guiding Directors of Troubled Corporations through Uncertain Territory.” Business Lawyer, 47 (11 1991), 1–32.Google Scholar
De Angelo, H. D., and De Angelo, L.. “Dividend Policy and Financial Distress: An Empirical Investigation of Troubled NYSE Firms.” Journal of Finance, 45 (1990), 1415–1432.CrossRefGoogle Scholar
Dodd, P., and Warner, J. B.. “On Corporate Governance: A Study of Proxy Contests.” Journal of Financial Economics, 11 (1983), 401–438.CrossRefGoogle Scholar
Doyle, C. S. “Bargaining on D&O Coverage.” The Corporate Board, Journal of Corporate Governance (07/08 1991), 13–17.Google Scholar
Fama, E. F. “Agency Problems and the Theory of the Firm.” Journal of Political Economy, 88 (1980), 288–307.Google Scholar
Fama, E. F., and Jensen, M. C.. “Separation of Ownership and Control.” Journal of Law and Economics, 26 (1983), 301–325.Google Scholar
Hall, B. H. “The Manufacturing Sector Master File: 1959–1987.” NBER Technical Working Paper (1990).Google Scholar
Hanks, J. J. “Evaluating Recent State Legislation on Director and Officer Liability Limitation and Indemnification.” Business Lawyer, 43 (1988), 1207–1254.Google Scholar
Hermalin, B., and Weisbach, M.. “The Determinants of Board Composition.” Rand Journal of Economics, 19 (1989), 589–606.CrossRefGoogle Scholar
Janjigian, V., and Bolster, P. J.. “The Elimination of Director Liability and Stockholder Returns: an Empirical Investigation.” Journal of Financial Research, 13 (1990), 53–60.CrossRefGoogle Scholar
Jensen, M. C. “The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems.” Journal of Finance, 48 (07 1993), 831–880.Google Scholar
Karpoff, J. M., and Rice, E. M.. “Organizational Form, Share Transferability, and Firm Performance: Evidence from the ANCSA Corporations.” Journal of Financial Economics, 24 (1989), 69–105.CrossRefGoogle Scholar
Lewin, T. “Business and the Law.” The New York Times (02 13, 1987).Google Scholar
Linn, S. C., and McConnell, J. J.. “An Empirical Investigation of the Impact of ‘Antitakeover’ Amendments on Common Stock Prices.” Journal of Financial Economics, 11 (1983), 361–399.Google Scholar
Lorsch, J. W., and Maclver, E.. Pawns or Potentates. Harvard Business School Press (1989).Google Scholar
Mallen, E. M., and Evans, D. W.. “Surviving the Directors' and Officers' Liability Crisis: Insurance and Other Alternatives.” Insurance Law Anthology, 12 (1987), 439–472.Google Scholar
Netter, J., and Poulsen, A.. “State Corporation Laws and Shareholders: The Recent Experience.” Financial Management, 18 (3, 1989), 29–40.CrossRefGoogle Scholar
Shaw, B. “Statutory Limits on Director Liability.” Business Horizons, 32 (1989), 43–50.Google Scholar
Slaughter, S. R. “Statutory and Non-Statutory Responses to the Directors and Officers Liability Insurance Crisis.” Indiana Law Review, 63 (1988), 529–548.Google Scholar
Schellhardt, T. D. “More Directors are Recruited from the Outside.” Wall Street Journal (03 20, 1991).Google Scholar
The Wyatt Company. Directors and Officers Liability Survey—1988.Google Scholar
Weisbach, M. S. “Outside Directors and CEO Turnover.” Journal of Financial Economics, 20 (1988), 431–460.CrossRefGoogle Scholar