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Learning and the disappearing association between governance and returns

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  • Bebchuk, Lucian A.
  • Cohen, Alma
  • Wang, Charles C.Y.
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    Abstract

    The correlation between governance indices and abnormal returns documented for 1990–1999 subsequently disappeared. The correlation and its disappearance are both due to market participants' gradually learning to appreciate the difference between good-governance and poor-governance firms. Consistent with learning, the correlation's disappearance was associated with increases in market participants' attention to governance; market participants and security analysts were, until the beginning of the 2000s but not subsequently, more positively surprised by the earning announcements of good-governance firms; and, although governance indices no longer generated abnormal returns during the 2000s, their negative association with firm value and operating performance persisted.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 108 (2013)
    Issue (Month): 2 ()
    Pages: 323-348

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    Handle: RePEc:eee:jfinec:v:108:y:2013:i:2:p:323-348

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Corporate governance; Governance indices; GIM; G-Index; E-Index; Shareholder rights; Entrenchment; Market efficiency; Learning; Earning announcements; Analyst forecasts; IRRC provisions; Behavioral finance; Asset pricing;

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    Cited by:
    1. Bruno Maria Parigi & Loriana Pelizzon & Ernst-Ludwig von Thadden, 2013. "Stock Market Returns, Corporate Governance and Capital Market Equilibrium," CESifo Working Paper Series 4496, CESifo Group Munich.
    2. Lin, Ji-Chai & Stephens, Clifford P. & Wu, YiLin, 2014. "Limited attention, share repurchases, and takeover risk," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 283-301.

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