| During the early 20th century, especially in the United States, contemporaries worried that the expropriation of minority investors by controlling shareholders would resort to securities fraud. Recent literature has found that cross-country differences in laws and their enforcement affect corporate policies: dividend payout, market valuation, and ownership structure. After constructing a panel data set for 70 firms of the oil and gas industry in 25 states for the years 1911 to 1923, I examine the passage of state investor protection statutes ("blue sky laws" or BSLs) that aim to prevented the sale of fraudulent securities in the U.S. during the early 20 th century to estimate the effects of BSLs on firm financing and investment decisions. Regression estimates suggest that the passage of BSLs causes the sample firms to decrease financial leverage through equity issuance, pay out greater dividends, and grow in size. More generally, results from political economy hypotheses and theories for the adoption of the BSLs for the measured changes in corporate policies, which seem to be understudied in economic analyses of investor protection laws, have limited explanatory power and should be more explicitly and more carefully incorporated into the analysis of temporal and spatial variations in securities law fraudulent prevention. |
