Corporate Governance Over the Business Cycle

30 Pages Posted: 19 Oct 2003

See all articles by Thomas Philippon

Thomas Philippon

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 2003

Abstract

I provide empirical evidence that badly governed firms respond more to aggregate shocks than do well governed firms. I build a simple model where managers are prone to over-invest and where shareholders are more willing to tolerate such a behavior in good times. The model successfully explains the average profit differences as well as the cyclical behavior of sales, employment and investment for firms with different governance qualities. The quantitative results suggest that governance conflicts can explain 30% of aggregate volatility.

Keywords: Corporate Governance, Business Cycles

JEL Classification: E2, E3, G3

Suggested Citation

Philippon, Thomas, Corporate Governance Over the Business Cycle (July 2003). Available at SSRN: https://ssrn.com/abstract=449281 or http://dx.doi.org/10.2139/ssrn.449281

Thomas Philippon (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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