Shareholder Coordination, Corporate Governance, and Firm Value

51 Pages Posted: 18 Jan 2014 Last revised: 10 Oct 2014

See all articles by Jiekun Huang

Jiekun Huang

University of Illinois at Urbana-Champaign - Department of Finance

Date Written: December 12, 2013

Abstract

Ease of coordination can enable diffuse shareholders to play a more effective role in corporate governance and thereby increase firm value. Using geographical proximity and correlation in portfolio allocation decisions as proxies for the ease of coordination, I find evidence that ease of coordination among institutional shareholders is positively associated with firm value. To identify the effect of shareholder coordination on firm value, I exploit two plausibly exogenous shocks to shareholder coordination, namely mergers of asset management firms and the 1992 proxy reform. Difference-in-differences estimates show that ease of coordination increases firm value. I further show that an exogenous decrease in ease of shareholder coordination leads to fewer anti-takeover provisions being rescinded, overly excessive CEO compensation, lower equity-based pay for CEOs, and a lower likelihood of that a CEO is replaced following poor performance. Overall, these findings suggest that ease of coordination improves firm value by enhancing the governance role provided by shareholders.

Keywords: Coordination, institutional investors, corporate governance, firm value

JEL Classification: G23, G32, G34

Suggested Citation

Huang, Jiekun, Shareholder Coordination, Corporate Governance, and Firm Value (December 12, 2013). Available at SSRN: https://ssrn.com/abstract=2380284 or http://dx.doi.org/10.2139/ssrn.2380284

Jiekun Huang (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

HOME PAGE: http://www.huangjk.info

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