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Shareholder Wealth Effects of Directors' Liability Limitation Provisions

Published online by Cambridge University Press:  06 April 2009

Yaron Brook  and
Ramesh K. S. Rao
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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

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