Concentrating on Governance

57 Pages Posted: 17 Mar 2006 Last revised: 16 Dec 2010

See all articles by Dalida Kadyrzhanova

Dalida Kadyrzhanova

Board of Governors of the Federal Reserve System

Matthew Rhodes-Kropf

Harvard Business School - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Date Written: November 15, 2010

Abstract

This paper develops a novel trade-off view of corporate governance. Using a simple model that integrates agency costs and bargaining benefits of management-friendly provisions, we identify the economic determinants of the resulting trade-offs for shareholder value. Consistent with the theory, our empirical analysis shows that provisions that allow managers to delay takeovers have a significant bargaining effect and a positive relation with shareholder value in concentrated industries. By contrast, non-delay provisions have an unambiguously negative relation with value, and more so in concentrated industries. Overall, our analysis suggests that there are governance trade-offs for shareholders and industry concentration is an important determinant of their severity.

Keywords: Corporate Governance, Industry Concentration, Antitakeover Provisions, Market for Corporate Control

JEL Classification: G30, G34

Suggested Citation

Kadyrzhanova, Dalida and Rhodes-Kropf, Matthew, Concentrating on Governance (November 15, 2010). Journal of Finance, Forthcoming, AFA 2007 Chicago Meetings Paper, Available at SSRN: https://ssrn.com/abstract=891418

Dalida Kadyrzhanova (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Matthew Rhodes-Kropf

Harvard Business School - Entrepreneurial Management Unit ( email )

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Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

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