The Corporate Governance – Performance Puzzle: New Insights

61 Pages Posted: 20 Jun 2017

See all articles by Ariadna Dumitrescu

Ariadna Dumitrescu

ESADE Business School

Mohammed Zakriya

ESADE Business School, Ramon Llull University

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2017

Abstract

This paper provides new insights on governance – performance relationship using recent data (2007 to 2015) on anti-takeover provisions’ incidence in sample firms. We present “nG (new Governance) Index”, an unequal weighted measure of corporate governance that captures the heterogeneity of its individual anti-takeover components, as an alternative to equal weighted G-Index, E-Index and Gov-Score proposed in the related literature. Our findings show that all provisions do not equally influence firms’ corporate governance quality and therefore, our proposed nG-Index traces governance – performance relationship more persistently than an equal-weighted measure. Further analysis reveals that an nG-Index based zero-investment hedge, going long on poor governance portfolio and shorting the good governance one, would have generated an abnormal return of over 1.33% per month or about 16% per year. This hedge is completely opposite to the long good governance – short poor governance strategy suggested in prior literature. We posit that such hedge reversal is an indication that, in recent years, investors underreact to good governance signals and/or seek compensation for high riskiness associated with poorly governed firms.

Keywords: Corporate Governance, Anti-Takeover Provisions, Defensive Tactics, G-Index, E-Index

JEL Classification: G30, G32, G34

Suggested Citation

Dumitrescu, Ariadna and Zakriya, Mohammed, The Corporate Governance – Performance Puzzle: New Insights (May 1, 2017). ESADE Business School Research Paper No. 268. Available at SSRN: https://ssrn.com/abstract=2989446 or http://dx.doi.org/10.2139/ssrn.2989446

Ariadna Dumitrescu (Contact Author)

ESADE Business School ( email )

Av. Pedralbes 60-62
Barcelona, 08034
Spain

Mohammed Zakriya

ESADE Business School, Ramon Llull University ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

HOME PAGE: http://www.esade.edu/research-webs/eng/gref

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
46
Abstract Views
924
PlumX Metrics