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A Reexamination of Corporate Governance and Equity Prices*

* This paper is a replication of an original study

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  • Shane A. Johnson
  • Theodore C. Moorman
  • Sorin Sorescu

Abstract

We reexamine long-term abnormal returns for portfolios sorted on governance characteristics. Firms with strong shareholder rights and firms with weak shareholder rights differ from the population of firms and from each other in how they cluster across industries. Using well-specified tests under this industry clustering, we find statistically zero long-term abnormal returns for portfolios sorted on governance. Our results have important implications for interpreting studies that link governance to firm value and stock returns, demonstrate the importance of the coarseness of industry definitions in financial research, and shed light on addressing statistical problems created by industry clustering in samples. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Suggested Citation

  • Shane A. Johnson & Theodore C. Moorman & Sorin Sorescu, 2009. "A Reexamination of Corporate Governance and Equity Prices," The Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4753-4786, November.
    • Handle: RePEc:oup:rfinst:v:22:y:2009:i:11:p:4753-4786
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    File URL: http://hdl.handle.net/10.1093/rfs/hhp018
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