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The Vote is cast: The effect of Corporate Governance on Shareholder Value

Author

Listed:
  • Vicente Cunat

  • Mireia Gine

  • Maria Guadalupe

Abstract

This paper estimates the effect of corporate governance provisions on shareholder value and long-term outcomes in S&P1500 firms. We apply a regression discontinuity design to shareholder votes on governance proposals in annual meetings. A close-call vote around the majority threshold is akin to a random outcome, allowing us to deal with prior expectations and the endogeneity of internal governance rules. Passing a corporate governance provision generates a 1.3% abnormal return on the day of the vote with an implied market value per provision of 2.8%. We also find evidence of changes in investment behaviour and long-term performance improvements.

Suggested Citation

  • Vicente Cunat & Mireia Gine & Maria Guadalupe, 2010. "The Vote is cast: The effect of Corporate Governance on Shareholder Value," FMG Discussion Papers dp663, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp663
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/DP663_2010TheVoteisCast.pdf
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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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