Managers' and Investors' Responses to Media Exposure of Board Ineffectiveness

Posted: 19 Sep 2007

See all articles by Jennifer R. Joe

Jennifer R. Joe

University of Delaware - Accounting & MIS

Henock Louis

Pennsylvania State University - Smeal College of Business

Dahlia Robinson

Arizona State University - School of Accountancy

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Abstract

We analyze the impact of the press on the behavior of various economic agents by examining how media exposure of board ineffectiveness affects corporate governance, investor trading behavior, and security prices. Our focus on board quality is motivated by the strong media criticism to which corporate boards and corporate America, in general, have been recently subjected. The results indicate that media releases of (noisy) information have significant economic consequences. In particular, media exposure of board ineffectiveness forces the targeted agents to take corrective actions and enhances shareholder wealth. Individual investors appear to react negatively to the media exposure whereas investment firms act as if they anticipate the targeted firms' corrective actions.

Keywords: Media, Public exposure, Board effectiveness, Corporate governance, Behavioral economics, Individual and institutional investor trading

JEL Classification: G14, G34

Suggested Citation

Joe, Jennifer R. and Louis, Henock and Robinson, Dahlia, Managers' and Investors' Responses to Media Exposure of Board Ineffectiveness. Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1014903

Jennifer R. Joe

University of Delaware - Accounting & MIS ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

Dahlia Robinson

Arizona State University - School of Accountancy ( email )

Tempe, AZ 85287
United States

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