Governance, Information Flow, and Stock Returns

60 Pages Posted: 1 May 2018 Last revised: 19 Jun 2020

See all articles by Ariadna Dumitrescu

Ariadna Dumitrescu

ESADE Business School

Mohammed Zakriya

IÉSEG School of Management; LEM-CNRS 9221

Date Written: June 19, 2020


We analyze the evolution of governance–returns relationship and show that poor governance stocks outperform good governance ones after 2008. This novel reversal of the governance–returns relationship implies that its disappearance documented in Bebchuk, Cohen, and Wang (2013) is temporary. The revival of this relationship can be explained by sophisticated investors learning to recognize governance risks and becoming more prudent after the global financial crisis. Consistent with this learning, we find that investors could have identified via price and risk channels that the poorly governed firms face higher uncertainty regarding their future earnings power after 2008. Furthermore, following the crisis, we observe that institutional investors update their governance preferences through information-induced learning.

Keywords: Institutional investors, learning, corporate governance, antitakeover provisions, E-Index, managerial entrenchment

JEL Classification: G14, G30, G34

Suggested Citation

Dumitrescu, Ariadna and Zakriya, Mohammed, Governance, Information Flow, and Stock Returns (June 19, 2020). Available at SSRN: or

Ariadna Dumitrescu

ESADE Business School ( email )

Av. Pedralbes 60-62
Barcelona, 08034

Mohammed Zakriya (Contact Author)

IÉSEG School of Management ( email )

3 rue de la Digue
Lille, 59000

LEM-CNRS 9221 ( email )


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