Idiosyncratic Risk, Governance and Equity Performance

21 Pages Posted: 24 Aug 2010 Last revised: 27 Aug 2010

See all articles by Steven P. Clark

Steven P. Clark

University of North Carolina (UNC) at Charlotte

Tao-Hsien Dolly King

University of North Carolina (UNC) at Charlotte - Department of Finance

Xinde Zhang

University of Arkansas - Department of Finance

Date Written: August 25, 2010

Abstract

We use a sample of democratic firms (with 5 or less anti-takeover provisions) from the Investor Responsibility Research Center (IRRC) database and use idiosyncratic volatility as a proxy for information from the market of corporate control as in Ferreira and Laux (2007) to link the equity performance, market of corporate control and corporate governance. We find that firms which are the least vulnerable to takeover threat (the least idiosyncratic risk) outperform the others. We also find that market information of takeover vulnerability is negatively related to future merger and acquisition shocks. All these effects are mitigated by the Sarbanes-Oxley Act 2002.

Keywords: Idiosyncratic Risk, Merge and Acquisition, Corporate Governance

JEL Classification: G14, G18

Suggested Citation

Clark, Steven P. and King, Tao-Hsien Dolly and Zhang, Xinde, Idiosyncratic Risk, Governance and Equity Performance (August 25, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper, Available at SSRN: https://ssrn.com/abstract=1664775 or http://dx.doi.org/10.2139/ssrn.1664775

Steven P. Clark

University of North Carolina (UNC) at Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

Tao-Hsien Dolly King

University of North Carolina (UNC) at Charlotte - Department of Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
704-687-7652 (Phone)
704-687-6987 (Fax)

Xinde Zhang (Contact Author)

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

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