The Wall Street Rule and Its Impact on Board Monitoring

70 Pages Posted: 24 Jan 2018 Last revised: 1 Apr 2018

See all articles by Brandon Chen

Brandon Chen

University of Technology Sydney (UTS)

Lien Duong

Curtin University of Technology; Curtin University

Thu Phuong Truong

Victoria University of Wellington - Te Herenga Waka

Date Written: January 24, 2018

Abstract

The “Wall Street Rule” (WSR), a form of monitoring by institutional investors, has been viewed as a “cut-and-run” strategy adopted to express dissatisfaction with a company’s management. In this study, we show that WSR, far from being a passive protest, is in fact a potent weapon to improve corporate governance. We present empirical evidence that WSR is positively associated with board monitoring when the firm is endowed with an outsider-dominated board. This suggests that WSR improves stock price informativeness, providing the board with an additional source of information so that it may monitor the company more effectively.

Keywords: Wall Street Rule, Exit, Board composition, Corporate governance, Stock Price Informativeness

JEL Classification: D82, G14, G23, G32, G34

Suggested Citation

Chen, Brandon and Duong, Lien and Duong, Lien and Truong, Thu Phuong, The Wall Street Rule and Its Impact on Board Monitoring (January 24, 2018). 9th Conference on Financial Markets and Corporate Governance (FMCG) 2018, Available at SSRN: https://ssrn.com/abstract=3102146 or http://dx.doi.org/10.2139/ssrn.3102146

Brandon Chen

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Lien Duong

Curtin University of Technology ( email )

School of Accounting, Curtin Business School
GPO Box U1987
Perth, WA 6845
Australia
(618) 9266 1212 (Phone)
(618) 9266 7196 (Fax)

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

Thu Phuong Truong (Contact Author)

Victoria University of Wellington - Te Herenga Waka ( email )

P.O. Box 600
Wellington, 6140
New Zealand
64 4 463 5233 (ext 8961) (Phone)
64 4 463 5076 (Fax)

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