The Vote is Cast: The Effect of Corporate Governance on Shareholder Value

50 Pages Posted: 23 Feb 2010 Last revised: 24 Feb 2012

See all articles by Vicente Cuñat

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group; The London School of Economics

Mireia Gine

IESE Business School, University of Navarra ; The University of Pennsylvania

Maria Guadalupe

Centre for Economic Policy Research (CEPR); INSEAD - Economics and Political Sciences; Institute for the Study of Labor (IZA)

Multiple version iconThere are 2 versions of this paper

Date Written: February 17, 2010

Abstract

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

Cuñat, Vicente and Cuñat, Vicente and Gine, Mireia and Guadalupe, Maria and Guadalupe, Maria, The Vote is Cast: The Effect of Corporate Governance on Shareholder Value (February 17, 2010). Available at SSRN: https://ssrn.com/abstract=1555961 or http://dx.doi.org/10.2139/ssrn.1555961

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://www.vicentecunat.com

The London School of Economics ( email )

United Kingdom

HOME PAGE: http://www.vicentecunat.com

Mireia Gine

IESE Business School, University of Navarra ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

The University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Maria Guadalupe (Contact Author)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

INSEAD - Economics and Political Sciences ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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