The Vote is Cast: The Effect of Corporate Governance on Shareholder Value
50 Pages Posted: 23 Feb 2010 Last revised: 24 Feb 2012
Date Written: February 17, 2010
This paper investigates whether improvements in the firm's internal corporate governance create value for shareholders. We analyze the market reaction to governance proposals that pass or fail by a small margin of votes in annual meetings. This provides a clean causal estimate that deals with the endogeneity of internal governance rules. We find that passing a proposal leads to significant positive abnormal returns. Adopting one governance proposal increases shareholder value by 2.8%. The market reaction is larger in firms with more antitakeover provisions, higher institutional ownership, stronger investor activism, and for proposals sponsored by institutions. In addition, we find that acquisitions and capital expenditures decline and long-term performance improves.
Keywords: Agency Cost, Corporate Governance, Shareholder Meetings, Regression Discontinuity, Event Studies
JEL Classification: G34, D21, G14
Suggested Citation: Suggested Citation