Board Monitoring and the Wall Street Rule
48 Pages Posted: 15 Aug 2010 Last revised: 27 Sep 2010
Date Written: June 30, 2010
Abstract
The “Wall Street Rule” (WSR) has long been viewed as a “cut-and-run” strategy adopted by disillusioned institutional investors to express their dissatisfaction with the management. In this study, I show that WSR, far from being a passive way of protesting, is in fact a potent weapon to improve corporate governance. I present empirical evidence that WSR, a form of institutional investor monitoring, is positively associated with board monitoring (measured by board independence) when the firm is endowed with a strong board (outsider-dominated) in the first place. The results are robust to the pre-SOX and post-SOX periods, the inclusion of firm fixed effects, and also hold after taking into account endogeneity issues, which are pervasive in corporate finance research. This suggests that the WSR improves stock price informativeness, providing the board with an additional source of information so that it may monitor more effectively.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems
-
The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems
-
The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems
-
Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature
-
Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature
-
Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature
-
CEO Involvement in the Selection of New Board Members: An Empirical Analysis
By David Yermack and Anil Shivdasani
-
The Uncertain Relationship between Board Composition and Firm Performance
By Sanjai Bhagat and Bernard S. Black
-
The Non-Correlation between Board Independence and Long-Term Firm Performance
By Sanjai Bhagat and Bernard S. Black
-
The Non-Correlation between Board Independence And Long-Term Firm Performance
By Sanjai Bhagat and Bernard S. Black