How Important is Corporate Governance?
David F. Larcker
Stanford University - Graduate School of Business
Scott A. Richardson
AQR Capital Management, LLC; London Business School
A. Irem Tuna
London Business School
We examine the relation between a broad set of corporate governance indicators and various measures of managerial decision making and organizational performance. Using a sample of 2,106 firms, we distill 39 structural measures of corporate governance (e.g., board characteristics, stock ownership, institutional ownership, activist stock ownership, existence of debt-holders, mix of executive compensation, and anti-takeover variables) into 14 governance constructs using principal components analysis. We find that these 14 constructs are related to operating performance, have a somewhat mixed association with abnormal accruals, Tobin's Q, and excess stock returns, and little relation to class action lawsuits and accounting restatements.
Number of Pages in PDF File: 77
Keywords: Corporate governance
JEL Classification: G34, M41, M43, M49, G32
Date posted: September 28, 2004