Governance and the Decision to Issue a Profit Warning
17 Pages Posted: 14 Jul 2008 Last revised: 16 Dec 2009
Date Written: July 13, 2008
The theoretical concept of agency costs developed by Jensen and Meckling (1976) and Jensen (2005) are used to study the assumed relationship between the quality of a firm's governance and its decision to issue a profit warning (PW), when it is overvalued. Based on a sample of Canadian companies between 2000 and 2004, results only partially support our hypotheses. The characteristics of the board seem to only play a secondary role in the decision to issue a profit warning when the firm is overvalued. Nonetheless, as expected, our study reveals the negative impact on the profit warning decision of the governance mechanisms based on market values that aim at aligning the interest of the managers and directors with those of the shareholders.
Note: Downloadable document is in French.
Keywords: Corporate governance, profit warning, overvalued equity
JEL Classification: G30, M00, M41
Suggested Citation: Suggested Citation