Working Paper: NBER ID: w16574
Authors: Vicente Cuat; Mireia Gine; Maria Guadalupe
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: No keywords provided
JEL Codes: D21; G14; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Improved governance structures (G38) | Lower agency costs (G39) |
| Improved governance structures (G38) | Enhanced firm value (G32) |
| Passing a corporate governance provision (G38) | Abnormal return on the day of the vote (D72) |
| Passing a corporate governance provision (G38) | Implied market value increase of $28 million per provision (D46) |
| Passing governance proposals (G34) | Changes in investment behavior (G40) |
| Passing governance proposals (G34) | Long-term performance improvements (D29) |