Governance and the Decision to Issue a Profit Warning

17 Pages Posted: 14 Jul 2008 Last revised: 16 Dec 2009

See all articles by Claude Francoeur

Claude Francoeur

HEC Montréal

Réal Labelle

HEC Montréal - Stephen A. Jarislowsky Chair in Governance

Isabelle Martinez

University of Toulouse - Paul Sabatier; LGC

Date Written: July 13, 2008

Abstract

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

Francoeur, Claude and Labelle, Réal and Martinez, Isabelle, Governance and the Decision to Issue a Profit Warning (July 13, 2008). Available at SSRN: https://ssrn.com/abstract=1159465 or http://dx.doi.org/10.2139/ssrn.1159465

Claude Francoeur

HEC Montréal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal H3T 2A7, Quebec
Canada

Réal Labelle (Contact Author)

HEC Montréal - Stephen A. Jarislowsky Chair in Governance ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514 340 6374 (Phone)

Isabelle Martinez

University of Toulouse - Paul Sabatier; LGC ( email )

118 Route de Narbonne
Toulouse cedex 9, F-31062
France

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