Thirty Years of Shareholder Rights and Stock Returns
University of Notre Dame
Harvard Law School; European Corporate Governance Institute (ECGI)
March 12, 2012
AFA 2013 San Diego Meetings Paper
This paper explores the robustness of the positive association between shareholder rights and abnormal stock returns (using the Fama-French-Cahart four factor model) and potential explanations thereof. Utilizing hand-collected shareholder rights data for the 1978-1989 period in conjunction with the existing post-1990 RiskMetrics data, we document that: (1) over the 1978-2007, the association is generally robust to a variety of controls and estimating abnormal returns at the portfolio or firm-level; (2) this association co-varies with merger and acquisition (M&A) waves; (3) while being acquired and making acquisitions are both strongly associated with abnormal stock returns, these effects do not explain the positive association; and (4) once the four factor model is supplemented with the Cremers, Nair & John (2009) takeover factor – which captures risk associated with time-varying investment opportunities and thus relates to the state of the M&A market – the association disappears.
Number of Pages in PDF File: 42
Keywords: G-Index, abnormal stock returns, robustness, takeover factor, shareholder rights
JEL Classification: G12, G34working papers series
Date posted: March 13, 2012 ; Last revised: September 24, 2013
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