Personal Liabilities and Corporate Innovation

Speaker: Hong Zou, University of Hong Kong

Topic:	Personal Liabilities and Corporate Innovation
Date:	May 15, 2017
Venue:	Room 502, Daoyuan Building, CUHK(SZ)
Speaker:	Hong Zou University of Hong Kong
Detail/Abstract:	We exploit the sudden change in Nevada’s Corporate Law in 2001 that significantly lowered directors’ and officers’ (D&O) legal liability to study whether D&O legal liability affects corporate innovation. We find that firms incorporated in Nevada before the law change exhibit an increase in innovation measured by the number of patents and non-self-citations relative to matched control firms. In addition, we find that the effect is stronger for firms facing higher litigation risk or firms operating in more R&D-intensive industries, and for explorative innovations that are riskier. Therefore, imposing legal liabilities on D&Os may entail a cost: litigation risk may inhibit corporate innovation.