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Corporate Governance Over the Business Cycle

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  • Thomas Philippon

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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File URL: http://pages.stern.nyu.edu/~tphilipp/papers/rbcgovernance.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 114.

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Date of creation: 2004
Date of revision:
Handle: RePEc:red:sed004:114

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
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Web page: http://www.EconomicDynamics.org/society.htm
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Keywords: business cycles; corporate governance;

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References

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Cited by:
  1. Rui Albuquerque & Neng Wang, 2007. "Agency Conflicts, Investment, and Asset Pricing," NBER Working Papers 13251, National Bureau of Economic Research, Inc.
  2. Simi Kedia & Thomas Philippon, 2009. "The Economics of Fraudulent Accounting," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2169-2199, June.
  3. Rahul Mukherjee, 2011. "Country Portfolios with Imperfect Corporate Governance," IHEID Working Papers 08-2011, Economics Section, The Graduate Institute of International Studies.
  4. Ana Hidalgo-Cabrillana, 2010. "Endogenous governance transparency and product market competition," Economics Working Papers we1021, Universidad Carlos III, Departamento de Economía.
  5. McKay, Alisdair & Reis, Ricardo, 2006. "The Brevity and Violence of Contractions and Expansions," CEPR Discussion Papers 5756, 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. Rahul Mukherjee, 2013. "Institutions, Corporate Governance and Capital Flows," IHEID Working Papers 10-2013, Economics Section, The Graduate Institute of International Studies.
  8. David Berger, 2012. "Countercyclical Restructuring and Jobless Recoveries," 2012 Meeting Papers 1179, Society for Economic Dynamics.

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