Corporate Governance and Firm Performance: The Sequel

52 Pages Posted: 6 May 2019

See all articles by Sanjai Bhagat

Sanjai Bhagat

University of Colorado at Boulder - Department of Finance

Brian J. Bolton

IMD Business School, Global Board Center

Date Written: April 12, 2019

Abstract

Director stock ownership is most consistently and positively related to future corporate performance. Public policymakers and long-term investors should find this result especially relevant given their strong interest in long-term corporate performance. Equally important, corporate governance researchers should consider director stock ownership as a measure of corporate governance; this will also aid in the comparability of results across different studies.

In our 2008 paper, Corporate governance and firm performance, we considered data through 2002. In this paper, we extend our sample period through 2016. These additional 14 years of data provide a powerful out-of-sample test of the specification and power of director stock ownership as a measure of corporate governance. Further, extending the period allows us to capture the dynamics of the financial crisis, the Great Recession, Sarbanes-Oxley (2002), and Dodd-Frank (2010). We find director stock ownership most consistently and positively related to future corporate performance in this out-of-sample period (2003-2016) across a battery of different specifications, estimation techniques, and for different sub-samples. One particular sub-sample of considerable public interest is the 100 largest U.S. financial institutions around 2008. Bank director stock ownership is positively related to future bank performance, and bank director stock ownership is negatively related to future bank risk, both prior to and during the financial crisis – both results of considerable interest to senior bank regulators.

Keywords: corporate governance, firm performance, bank capital, bank governance, executive compensation, director compensation, bank risk

JEL Classification: G21, G34

Suggested Citation

Bhagat, Sanjai and Bolton, Brian J., Corporate Governance and Firm Performance: The Sequel (April 12, 2019). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3371172

Sanjai Bhagat (Contact Author)

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States
303-492-7821 (Phone)

Brian J. Bolton

IMD Business School, Global Board Center ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland
+41216180225 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
85
Abstract Views
340
rank
296,735
PlumX Metrics