Peer Effects in Corporate Governance Practices: Evidence from Universal Demand Laws

54 Pages Posted: 30 Jul 2018 Last revised: 4 Dec 2018

See all articles by Pouyan Foroughi

Pouyan Foroughi

University of New South Wales

Alan J. Marcus

Boston College - Department of Finance

Vinh Nguyen

The University of Hong Kong - School of Economics and Finance

Hassan Tehranian

Boston College - Department of Finance

Multiple version iconThere are 4 versions of this paper

Date Written: November 2018

Abstract

Firms in the same networks tend to have similar corporate governance practices. However, it is difficult to disentangle peer effects, where governance practices propagate from one firm to another, from selection effects, where firms with similar governance preferences self-select into linked groups. Studying board-interlocked firms, we utilize a novel instrument based on staggered adoptions of universal demand laws across states to identify causal peer effects in firms' decisions on CEO's compensation, CEO duality, and anti-takeover provisions. Our results thus provide support for the existence of peer effect in the adoption of anti-takeover provisions. We find that a firm's propensity to adopt these provisions increases after other firms in the same board interlock network choose to adopt similar policies. The impact of universal demand laws on the interlocking directors' experience in passing these provisions is a likely mechanism explaining these effects.

Keywords: corporate governance; board interlocks; peer effects; derivative lawsuits

JEL Classification: G34; G38

Suggested Citation

Foroughi, Pouyan and Marcus, Alan J. and Nguyen, Vinh and Tehranian, Hassan, Peer Effects in Corporate Governance Practices: Evidence from Universal Demand Laws (November 2018). 31st Australasian Finance and Banking Conference 2018. Available at SSRN: https://ssrn.com/abstract=3222328 or http://dx.doi.org/10.2139/ssrn.3222328

Pouyan Foroughi (Contact Author)

University of New South Wales ( email )

Sydney, NSW 2052
Australia

Alan J. Marcus

Boston College - Department of Finance ( email )

Fulton Hall
Chestnut Hill, MA 02467
United States
617-552-2767 (Phone)
617-552-0431 (Fax)

Vinh Nguyen

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

Hassan Tehranian

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
59
Abstract Views
368
rank
66,152
PlumX Metrics