Corporate Governance and the Long-Run Performance of Firms Issuing Seasoned Equity: An Australian Study
43 Pages Posted: 16 Apr 2009 Last revised: 4 Jan 2010
Date Written: April 13, 2009
Corporate governance has been propelled to the forefront of contemporary business thinking by a string of high profile corporate collapses and dramatic regulatory responses in both the United States and Australia. A particularly extensive body of research has emerged surrounding the relationship between corporate governance and firm performance. We provide the first in-depth examination of this issue in an Australian context, making use of our comprehensive self-constructed governance database. We take the novel approach of combining the governance literature with evidence surrounding the long-term underperformance of firms issuing seasoned equity. Thus, we examine whether good corporate governance mitigates post-issue underperformance. Utilising a broad sample of Australian seasoned equity offerings, we demonstrate that issuing firms underperform a variety of benchmarks over the long term, confirming similar findings in the existing literature. We also find evidence of a positive relationship between the quality of a firm’s corporate governance and its relative post-issue performance. Our findings are robust to a variety of estimation methods and econometric specifications, and have far-reaching implications for researchers, regulators, firms and investors alike.
Keywords: Corporate governance, seasoned equity issue, long-run underperformance
JEL Classification: G14, G32
Suggested Citation: Suggested Citation