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Does Corporate Governance Matter for Equity Returns?

Dean Diavatopoulos

Villanova University - Department of Finance

Andy Fodor

Ohio University

February 2, 2010

In this paper we reexamine the findings of Gompers, Ishii, and Metrick (2003) and Bebchuk, Cohen, and Ferrell (2009) and find the link between corporate governance (as measured by the G index and E index) and firm stock returns is much weaker than previously suggested. We extend the sample period and find a reversal of the relationship between governance and stock returns documented in these works over the 1990s and early 2000s. We further explore the source of the observed superior performance of good governance firms during the 1990s and find this relationship is partially driven by large firms and the Nasdaq bubble. We conclude corporate governance is less important for firm stock returns than suggested by previous literature.

Number of Pages in PDF File: 33

Keywords: corporate governance, stock returns, Nasdaq bubble

JEL Classification: G30, G34, K22

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Date posted: February 2, 2010 ; Last revised: December 25, 2013

Suggested Citation

Diavatopoulos, Dean and Fodor, Andy, Does Corporate Governance Matter for Equity Returns? (February 2, 2010). Available at SSRN: http://ssrn.com/abstract=1546645 or http://dx.doi.org/10.2139/ssrn.1546645

Contact Information

Dean Diavatopoulos (Contact Author)
Villanova University - Department of Finance ( email )
800 Lancaster Avenue
Villanova, PA 19085-1678
United States
Andy Fodor
Ohio University ( email )
234 Copeland
Athens, OH 45701
United States
740.593.0514 (Phone)
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