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Director-liability-reduction laws and firm investment

W X Li et al.

Journal of Behavioral and Experimental Finance2026https://doi.org/10.1016/j.jbef.2026.101166article
AJG 1ABDC A
Weight
0.50

Abstract

This study examines how an external shock that lowers independent directors’ litigation risk affects firms’ investment behaviour. Exploiting the staggered enactment of Director-Liability-Reduction (DLR) laws across U.S. states between 1986 and 2002, and using a difference-in-differences design, we find that firms’ long-term investment declines following the enactment of DLR laws. We also find that the reduction cannot be explained by financial constraints or by a lack of growth opportunities. Overall, our results suggest that a regulation intended to encourage independent director participation may have unintentionally weakened board effectiveness, leading to curtailed long-horizon investment.

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https://doi.org/https://doi.org/10.1016/j.jbef.2026.101166

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@article{w2026,
  title        = {{Director-liability-reduction laws and firm investment}},
  author       = {W X Li et al.},
  journal      = {Journal of Behavioral and Experimental Finance},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1016/j.jbef.2026.101166},
}

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Director-liability-reduction laws and firm investment

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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