In Gantler v. Stephens (2009), the Delaware Supreme Court makes explicit that corporate officers owe the same fiduciary duty to the firm and shareholders as do board members. The decision increased the risk of non‐board‐serving officers being added as named defendants to investor litigation but did not change the risk of corporate litigation. Analyzing the effect of the Gantler ruling on non‐board‐serving CFO s, we find a significant change in their behavior as well as in their firms’ disclosure and accounting choices. Specifically, speech tone during earnings calls of non‐board‐serving CFO s becomes more negative when compared to board‐serving CFO s and the firm's CEO , and non‐board‐serving CFO firms disclose bad news earlier and report more conservatively. Results are stronger for firms incorporated in Delaware. Our findings suggest that CFO s respond to personal litigation risk over and above corporate litigation risk.

This paper examines how disclosures regarding internal controls, required by sections 302 and 404 of the Sarbanes‐Oxley Act of 2002 ( SOX ), affect the market for corporate control. We hypothesize that acquirers with internal control weaknesses ( ICW s) make suboptimal acquisition decisions based on poor‐quality information generated by their ineffective controls over financial reporting. We expect that such acquirers will be more likely to misestimate the value of their targets or the potential synergies from mergers, thereby overpaying for completed deals. Using a treatment sample of acquisitions made by acquirers that have disclosed ICW s and two matched control samples without ICW disclosures, we document that ICW acquirers experience a substantially more negative market response to acquisition announcements and have lower future performance than the two matched control samples without ICW disclosures. Overall, our results suggest that ineffective internal controls hinder decision making related to mergers and acquisitions (M&A).