Corporate Governance Over the Business Cycle

31 Pages Posted: 4 Nov 2008

See all articles by Thomas Philippon

Thomas Philippon

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

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Date Written: July 2003

Abstract

I provide empirical evidence that badly governed firms respond more to aggregate shocks than do well governed firms. I build a simple model where managers are prone to overinvest and where shareholders are more willing to tolerate such a behavior in goodtimes. The model successfully explains the average profit differences as well as thecyclical behavior of sales, employment and investment for firms with different governancequalities. The quantitative results suggest that governance conflicts can explain 30% ofaggregate volatility.

Suggested Citation

Philippon, Thomas, Corporate Governance Over the Business Cycle (July 2003). NYU Working Paper No. S-CG-03-03, Available at SSRN: https://ssrn.com/abstract=1295251

Thomas Philippon (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

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United States

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