The Impact of Internal and External Firm-Level Mechanisms on Corporate Performance During the Financial Market Crisis (2007-08)

36 Pages Posted: 10 Jun 2012

Date Written: May 20, 2012

Abstract

This paper examines the Firm-Level internal and external control governance mechanisms during the financial market crisis of 2007-08. This study employs two different methods by dividing a portfolio of 136 firms into two samples to examine the effects of both the internal and external control mechanisms. The first sample uses a regression of a normal Ordinary Least Square (OLS) robust standard error and then extending it to include entity effects, time effects and both entity and time effects. In the second sample, we run a binary regression to enable us to predict the probability of survival for each company. Based on both samples, we find a positively significant correlation between the internal firm mechanisms, shareholders wealth maximization proxied by stock return during the financial crisis. The binary regression provides a negatively significant support that with strong and higher external control mechanisms proxied by IRRC anti-takeover provisions, leads to a weak shareholders and, in turn, negatively influence the shareholders wealth proxied by stock return and the probability of surviving during uncertainty.

Suggested Citation

Quttainah, Majdi Anwar, The Impact of Internal and External Firm-Level Mechanisms on Corporate Performance During the Financial Market Crisis (2007-08) (May 20, 2012). Available at SSRN: https://ssrn.com/abstract=2063266 or http://dx.doi.org/10.2139/ssrn.2063266

Majdi Anwar Quttainah (Contact Author)

Kuwait University ( email )

Kuwait

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