Corporate Governance and Firm Value: the Impact of the 2002 Governance Rules

Chhaochharia, Vidhi; Grinstein, Yaniv

doi:10.2139/ssrn.556990

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Corporate Governance and Firm Value: the Impact of the 2002 Governance Rules

Johnson School Research Paper Series No. 23-06

AFA 2006 Boston Meetings Paper

59 Pages Posted: 24 Oct 2005

See all articles by Vidhi Chhaochharia

Vidhi Chhaochharia

University of Miami - Department of Finance

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Reichman University - Interdisciplinary Center (IDC) Herzliyah; European Corporate Governance Institute (ECGI)

Date Written: March 2007

Abstract

The 2001 to 2002 corporate scandals led to the Sarbanes Oxley Act and to various amendments to the U.S. stock exchanges' regulations. We find that the announcement of these rules has a significant effect on firm value. Firms that are less compliant with the provisions of the rules earn positive abnormal returns compared to firms that are more compliant. We also find variation in the response across firm size. Large firms that are less compliant earn positive abnormal returns but small firms that are less compliant earn negative abnormal returns, suggesting that some provisions are detrimental to small firms.

Keywords: Governance, Sarbanes Oxley, Exchange Rules

JEL Classification: G34, G38

Suggested Citation: Suggested Citation

Chhaochharia, Vidhi and Grinstein, Yaniv and Grinstein, Yaniv, Corporate Governance and Firm Value: the Impact of the 2002 Governance Rules (March 2007). Johnson School Research Paper Series No. 23-06, AFA 2006 Boston Meetings Paper, Available at SSRN: https://ssrn.com/abstract=556990 or http://dx.doi.org/10.2139/ssrn.556990