Seminar

The Vote is Cast: The Effect of Corporate Governance on Shareholder Value

Vicente Cunat (London School of Economics)

April 11, 2011, 12:30–14:00

Room MF 323

Fédération des Banques Françaises Seminar

Abstract

This paper estimates the effect of corporate governance provisions on shareholder value and long-term outcomes in S&P1500 firms. We apply a regression discontinuity design to shareholder votes on governance proposals in annual meetings. A close-call vote around the majority threshold is akin to a random outcome, allowing us to deal with prior expectations and the endogeneity of internal governance rules. Passing a corporate governance provision generates a 1.3% abnormal return on the day of the vote with an implied market value per provision of 2.8%. We also find evidence of changes in investment behavior and long-term performance improvements.

Keywords

Agency Cost; Corporate Governance; Shareholder Meetings; Regression Discontinuity; Event Studies;

JEL codes

  • G14: Information and Market Efficiency • Event Studies • Insider Trading
  • G34: Mergers • Acquisitions • Restructuring • Corporate Governance