A Reexamination of Corporate Governance and Equity Prices with Updated and Supplemental Results

Review of Financial Studies, Forthcoming

78 Pages Posted: 15 Sep 2009 Last revised: 18 Oct 2011

See all articles by Shane A. Johnson

Shane A. Johnson

Texas A&M University - Department of Finance

Theodore C. Moorman

affiliation not provided to SSRN

Sorin M. Sorescu

Texas A&M University - Department of Finance

Date Written: September 15, 2009

Abstract

We reexamine long-term abnormal returns for portfolios sorted on governance characteristics. Firms with strong shareholder rights and firms with weak shareholder rights differ from the population of firms and from each other in how they cluster across industries. Using well specified tests under this industry clustering, we find statistically zero long-term abnormal returns for portfolios sorted on governance. Our results have important implications for interpreting studies that link governance to firm value and stock returns, demonstrate the importance of the coarseness of industry definitions in financial research, and shed light on addressing statistical problems created by industry clustering in samples. This version contains updated and supplemental results.

Keywords: corporate governance, stock returns, industry, simulation, market efficiency

JEL Classification: G12, G14, G34, C15

Suggested Citation

Johnson, Shane A. and Moorman, Theodore C. and Sorescu, Sorin M., A Reexamination of Corporate Governance and Equity Prices with Updated and Supplemental Results (September 15, 2009). Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1473860

Shane A. Johnson (Contact Author)

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

Theodore C. Moorman

affiliation not provided to SSRN

Sorin M. Sorescu

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-458-0380 (Phone)

HOME PAGE: http://wehner.tamu.edu/finc.www/ssorescu/

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