IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Thirty Years of Corporate Governance: Firm Valuation & Stock Returns

  • Martijn Cremers
  • Allen Ferrell
Registered author(s):

    his paper introduces a dataset tracking approximately 1,000 firms’ G- and E-index scores, as well the individual corporate governance provisions constituting these indexes, over the 1978-1989 period. Combining this data with the 1990-2006 IRRC data, we are able to track firms’ corporate governance over a thirty year period. Most governance changes occurred during the 1980s (with relative stability thereafter). We find a robustly negative association between the G- and E-Index and Tobin’s Q for the 1978-2006 period, even when using firm fixed effects, and little direct evidence for reverse causation. The negative firm valuation effects of classified boards, poison pills and G-Index generally was significantly greater after the judicial approval of the poison pill in 1985, which can be considered as a largely unanticipated, exogenous shock to corporate governance. Moreover, G-Index changes have a much stronger negative association with firm valuation when a firm is in an industry experiencing “high†levels of M&A activity. Finally, we find a robust positive association between “good†corporate governance and abnormal returns for the 1978-2006 period. The abnormal returns association with governance was strongest in the beginning of our 1978-2006 time period and generally declining thereafter, consistent with an explanation of these returns based on the market learning the importance of good governance.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://icfpub.som.yale.edu/publications/2485
    Download Restriction: no

    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number amz2485.

    as
    in new window

    Length:
    Date of creation: 04 Jun 2009
    Date of revision: 08 Nov 2009
    Handle: RePEc:ysm:somwrk:amz2485
    Contact details of provider: Web page: http://icf.som.yale.edu/

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Karpoff, Jonathan M. & Malatesta, Paul H., 1989. "The wealth effects of second-generation state takeover legislation," Journal of Financial Economics, Elsevier, vol. 25(2), pages 291-322, December.
    2. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
    3. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2009. "What Matters in Corporate Governance?," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 783-827, February.
    4. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    5. Lambert, Richard A. & Larcker, David F., 1985. "Golden parachutes, executive decision-making, and shareholder wealth," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 179-203, April.
    6. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2001. "Corporate Governance and Equity Prices," NBER Working Papers 8449, National Bureau of Economic Research, Inc.
    7. Lucian Bebchuk, . "The Costs of Entrenched Boards," American Law & Economics Association Annual Meetings 1091, American Law & Economics Association.
    8. DeAngelo, Harry & DeAngelo, Linda, 1985. "Managerial ownership of voting rights : A study of public corporations with dual classes of common stock," Journal of Financial Economics, Elsevier, vol. 14(1), pages 33-69, March.
    9. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    10. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
    11. Bhagat, Sanjai & Brickley, James A, 1984. "Cumulative Voting: The Value of Minority Shareholder Voting Rights," Journal of Law and Economics, University of Chicago Press, vol. 27(2), pages 339-65, October.
    12. John E. Core & Wayne R. Guay & Tjomme O. Rusticus, 2006. "Does Weak Governance Cause Weak Stock Returns? An Examination of Firm Operating Performance and Investors' Expectations," Journal of Finance, American Finance Association, vol. 61(2), pages 655-687, 04.
    13. Jarrell, Gregg A & Bradley, Michael, 1980. "The Economic Effects of Federal and State Regulations of Cash Tender Offers," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 371-407, October.
    14. Kenneth Lehn & Annette Poulsen, 1989. "Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-787, 07.
    15. Lehn, Kenneth & Poulsen, Annette, 1989. " Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-87, July.
    16. Mitchell, Mark L. & Mulherin, J. Harold, 1996. "The impact of industry shocks on takeover and restructuring activity," Journal of Financial Economics, Elsevier, vol. 41(2), pages 193-229, June.
    17. K. J. Martijn Cremers & Vinay B. Nair, 2005. "Governance Mechanisms and Equity Prices," Journal of Finance, American Finance Association, vol. 60(6), pages 2859-2894, December.
    18. K.J. Martijn Cremers & Vinay B. Nair, 2003. "Governance Mechanisms and Equity Prices," Yale School of Management Working Papers ysm376, Yale School of Management.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ysm:somwrk:amz2485. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.