We just placed on SSRN our study Controllers Unbound. This post is part of a series of posts, based on this study, about the expected dire consequences of the recent relaxing of constraints on controlling shareholders.

Delaware’s recent SB21 legislation substantially weakened the constraints on controllers of public companies. Weak constraints exist in other states—notably Texas and Nevada—and Delaware’s legislation appears intended, at least in part, to induce companies to avoid reincorporating to those jurisdictions. These weaker constraints, our study concludes, should be expected to produce large and detrimental effects for public investors and the broader economy.

Even among those who have expressed concern about SB 21 and the loosening of controller constraints, we believe, there is substantial underestimation of the expected harm. This underestimation, we contend, is also prevalent among institutional investors. We believe it is crucial for all those interested in protecting public investors and ensuring the efficient operation of corporate America to fully understand the looming risks, and we seek to contribute to that understanding. We hope our work will help educate investors and market participants about the significant dark clouds gathering over the U.S. capital markets.

The analysis of our study has several components, which we outline in turn below.

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