The 1991 Credit Lyonnais court ruling expanded the fiduciary duties of managers towards debtholders in near-insolvent Delaware firms. Differences-in-differences tests reveal that innovation efficiency increased among all Delaware firms following the ruling. Further, Delaware firms close to (far from) insolvency reduced (expanded) their R&D expenditures and innovation output. Both sets of firms exhibit a reduced focus on meeting myopic earnings goals, and a shift from transient towards dedicated institutional owners. We conclude that expanding fiduciary duties towards debtholders motivated a longer-term focus at Delaware firms and, as evidenced by improvements in Tobin’s Q and solvency, benefited both shareholders and debtholders.
Agency Environment, Credit Lyonnais, Fiduciary Duties, Investment, Earning Goals, Shareholder Clientele
Accounting | Corporate Finance
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HUANG, Sterling Zhenrui; NG, Jeffrey Tee Yong; ROYCHOWDHURY, Sugata; and SLETTEN, Ewa.
The Impact of the Agency Environment on Management’s Long-Term Focus. (2015). 1-50. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/1421
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