Investor-Driven Governance Standards and Firm Value

54 Pages Posted: 8 Jun 2020 Last revised: 23 Mar 2022

See all articles by Yonca Ertimur

Yonca Ertimur

University of Colorado at Boulder - Department of Accounting

Paige Harrington Patrick

University of Illinois at Chicago - Department of Accounting

Date Written: March 22, 2022

Abstract

We examine the relation between governance standards proposed by a diverse, influential group of institutional investors, the Investor Stewardship Group (ISG), and firm outcomes. The ISG governance framework is unique in that it represents a coordinated effort by institutional investors to achieve common changes in portfolio firms’ corporate governance. We document a positive association between governance provisions included in the ISG framework and firm value. We also find that boards of firms with a greater proportion of ISG provisions in place are more likely to dismiss poorly performing CEOs and less likely to restate financial reports, but we do not find that market reactions to M&A activity are associated with consistency with the ISG framework. Collectively, our results suggest institutional investors are able and willing to identify “good” governance practices, though the potential benefits of these practices do not extend to all monitoring outcomes.

Keywords: Institutional Investors, Corporate Governance, Monitoring

JEL Classification: G30, G34

Suggested Citation

Ertimur, Yonca and Patrick, Paige Harrington, Investor-Driven Governance Standards and Firm Value (March 22, 2022). Available at SSRN: https://ssrn.com/abstract=3599479 or http://dx.doi.org/10.2139/ssrn.3599479

Yonca Ertimur (Contact Author)

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

419 UCB
Boulder, CO 80309-0419
United States

Paige Harrington Patrick

University of Illinois at Chicago - Department of Accounting ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States

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