The Impact of Exogenous Corporate Governance Changes on Innovation and Market Value

We investigate how exogenous corporate governance changes in terms of anti-takeover provisions affect the innovation and market value of the firm. Consistent with our conjecture, using triple difference-in-differences models, we find that the unexpected changes in the interpretation of the case law cause a decrease in innovation for Delaware firms with classified boards, entrenched managers, and in less competitive industries. We also show that after the case rulings for Delaware firms, lower (higher) innovation activities are associated with lower (higher) market values. Our results are robust to inclusion of conventional governance measures, alternative model specifications, and different measures of innovation.