Working Paper: NBER ID: w17061
Authors: Antoinette Schoar; Ebonya L. Washington
Abstract: This paper examines the extent to which the corporate governance structure of a firm arises endogenously in response to its performance. We demonstrate that following periods of abnormally good performance, managers are more likely to call special meetings and to propose and pass governance measures that are contrary to shareholder interests (based on IRRC classification). These results are driven primarily by firms that are characterized as having poor governance according to either the GIM Index or the proportion of activist shareholders. Following these special meetings, we find that the next quarter performance of the firm is negative. Our results are consistent with an interpretation of shareholder inattention to governance following good firm performance or a desire to reward management for good past performance. Overall, our evidence seems more consistent with the former interpretation.
Keywords: Corporate Governance; Earnings Surprises; Shareholder Meetings
JEL Codes: G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| positive earnings surprise (G14) | timing of special meetings (C41) |
| positive earnings surprise (G14) | likelihood of bad governance proposals (D72) |
| firm performance (L25) | governance changes (G38) |
| good performance (D29) | special meetings with bad governance proposals (G34) |
| poor governance (D73) | special meetings with bad governance proposals (G34) |