When Do Governance Mechanisms Matter Most?

56 Pages Posted: 9 Nov 2014 Last revised: 16 Mar 2017

See all articles by Derek Horstmeyer

Derek Horstmeyer

George Mason University - Department of Finance

Kara Wells

Southern Methodist University (SMU) - Accounting Department

Date Written: March 1, 2017

Abstract

We examine the interaction of internal and external firm-level governance mechanisms with industry-specific economic conditions to assess when they best serve current shareholders. We find that external governance (shareholder rights) is most valuable during industry upturns, with no differential benefit during downturns. For internal governance, we find that small boards are incrementally more valuable during upturns but that this result weakens/reverses during downturns, and inconclusive evidence regarding the state dependent value of institutional ownership. Contributions include showing: governance mechanisms have industry economic state dependent values; small boards may not always be optimal; and managers do not capture these inefficiencies through aggressive policy decisions, nor excessive compensation.

Keywords: Governance, shareholder rights, board size, institutional ownership, economic conditions

Suggested Citation

Horstmeyer, Derek and Wells, Kara, When Do Governance Mechanisms Matter Most? (March 1, 2017). Available at SSRN: https://ssrn.com/abstract=2520942 or http://dx.doi.org/10.2139/ssrn.2520942

Derek Horstmeyer (Contact Author)

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

Kara Wells

Southern Methodist University (SMU) - Accounting Department ( email )

United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
105
Abstract Views
1,198
rank
265,978
PlumX Metrics