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Corporate governance over the business cycle

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  • Philippon, Thomas

Abstract

I provide empirical evidence that badly governed firms respond more to aggregate shocks than do well governed firms. I build a simple model where managers are prone to over-invest and where shareholders are more willing to tolerate such a behavior in good times. The model successfully explains the average profit differences as well as the cyclical behavior of sales, employment and investment for firms with different governance qualities. The quantitative results suggest that governance conflicts can explain 30% of aggregate volatility

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 30 (2006)
Issue (Month): 11 (November)
Pages: 2117-2141

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Handle: RePEc:eee:dyncon:v:30:y:2006:i:11:p:2117-2141

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Cited by:
  1. Jean-Pierre Danthine & John Donaldson, . "Executive Compensation: A General Equilibrium Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  2. Ana Hidalgo-Cabrillana, 2010. "Endogenous governance transparency and product market competition," Economics Working Papers we1021, Universidad Carlos III, Departamento de Economía.
  3. McKay, Alisdair & Reis, Ricardo, 2006. "The Brevity and Violence of Contractions and Expansions," CEPR Discussion Papers 5756, C.E.P.R. Discussion Papers.
  4. David Berger, 2012. "Countercyclical Restructuring and Jobless Recoveries," 2012 Meeting Papers 1179, Society for Economic Dynamics.
  5. Albuquerque, Rui & Wang, Neng, 2005. "Agency Conflicts, Investment and Asset Pricing," CEPR Discussion Papers 4955, C.E.P.R. Discussion Papers.
  6. Gary Gorton & Ping He, 2006. "Agency-Based Asset Pricing," NBER Working Papers 12084, National Bureau of Economic Research, Inc.
  7. Simi Kedia & Thomas Philippon, 2005. "The Economics of Fraudulent Accounting," NBER Working Papers 11573, National Bureau of Economic Research, Inc.
  8. Rahul Mukherjee, 2013. "Institutions, Corporate Governance and Capital Flows," IHEID Working Papers 10-2013, Economics Section, The Graduate Institute of International Studies.
  9. Rahul Mukherjee, 2011. "Country Portfolios with Imperfect Corporate Governance," IHEID Working Papers 08-2011, Economics Section, The Graduate Institute of International Studies.

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