Does Implementation of the Stewardship Code Affect Investors' Judgment and Decision-Making on Firm's Negative Information?

Abstract

Since 2010, the Stewardship Code (SC) or similar regulations have been introduced to enhance the quality of institutional investors' engagement and to improve long-term firm value. Although some prior anecdotal or legal studies have expressed skepticism toward the effectiveness of the SC, there has been little empirical evidence regarding the effects of these policies. Accordingly, the purpose of this paper is to investigate how the implementation of the SC affects nonprofessional investors’ judgment and decision-making on an investee firm facing negative issues. Based on the results of a quasi-experiment with Korean nonprofessional investors, we show that the implementation of the SC may negatively impact nonprofessional investors' assessments of the firm, contrary to the intended purpose of SC adoption. This study provides timely implications for the future operation and development of the stewardship policies recently adopted in many countries.

Keywords: Stewardship Code, institutional shareholders, nonprofessional investors, corporate governance, experiment

JEL Classification: G30, G32, G34, G38