Re-Examining Board Reforms and Firm Value: Response to “How Much Should We Trust Staggered Differences-in-Differences Estimates?” by Baker, Larcker, and Wang (2021)

20 Pages Posted: 15 Jul 2021

See all articles by Larry Fauver

Larry Fauver

University of Tennessee, Knoxville - Department of Finance; University of Tennessee

Mingyi Hung

Hong Kong University of Science & Technology (HKUST)

Xi Li

University of Arkansas - Department of Finance

Alvaro G. Taboada

Mississippi State University

Date Written: July 13, 2021

Abstract

Using board reforms in 41 countries and staggered difference-in-differences (DiD) estimates, Fauver, Hung, Li, and Taboada (2017, FHLT) find that firm value increases following the reforms. In a study that reviews the recent econometric theory on staggered DiD estimations, Baker, Larcker, and Wang (2021, BLW) contest the robustness of FHLT’s results. They conclude that FHLT’s results become mostly insignificant using alternative approaches that address the biases suggested by this recent theory. However, we find that the insignificant findings in BLW’s analysis are largely due to selective modifications that BLW made to FHLT’s data and model specifications, which resulted in low power tests. Importantly, these changes, which were not transparently disclosed in BLW, largely explain the insignificant results reported in BLW, even before implementing the new econometric approaches. Thus, in this study, we perform a battery of tests that apply alternative approaches that address the biases suggested in this recent literature. In contrast to the conclusions in BLW, we find that FHLT’s results remain significant. Our findings reinforce the conclusion of FHLT that board reforms increase firm value and highlight the importance of fair data representation when applying modified staggered DiD methods.

Keywords: Staggered difference-in-differences estimates; board reforms

JEL Classification: C13, C18, G15, G34, K22

Suggested Citation

Fauver, Larry and Hung, Mingyi and Li, Xi and Taboada, Alvaro G., Re-Examining Board Reforms and Firm Value: Response to “How Much Should We Trust Staggered Differences-in-Differences Estimates?” by Baker, Larcker, and Wang (2021) (July 13, 2021). Available at SSRN: https://ssrn.com/abstract=3885472 or http://dx.doi.org/10.2139/ssrn.3885472

Larry Fauver

University of Tennessee, Knoxville - Department of Finance ( email )

424 Stokely Management Center
Knoxville, TN 37996
United States

University of Tennessee ( email )

424 Stokely Management Center
Department of Finance
Knoxville, TN 37996-0540
United States
865-974-1722 (Phone)
865-974-1716 (Fax)

Mingyi Hung (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Xi Li

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

Alvaro G. Taboada

Mississippi State University ( email )

310-H McCool Hall
PO Box 9580
Mississippi State, MS 39762
United States
662-325-6716 (Phone)
662-325-1977 (Fax)

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