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

Finance & Accounting

Speaker:Vicente Cunat, LSE
Date: Friday 21 May 2010
Time: 14:00-15:30
Location: MBA Lecture Theatre

Further details

While the agency problem is at the heart of our understanding of how firms work, there is little causal evidence of the effect of corporate governance on shareholder value. This paper estimates the effect of corporate governance provisions on shareholders' value and long-term outcomes. We exploit the outcomes of S&P1500 shareholder votes in annual meetings using a regression discontinuity design to identify their effect on performance. We can identify a causal effect on stock returns, because the outcomes of votes around the majority threshold are random and unexpected by the stock market. Our results show that passing a corporate governance provision generates a 1.3% excess return on the day of the vote. This implies that the value of a governance provision is 2.8% of market value. We also find evidence of changes in investment behavior and some long-term performance improvements.

Full paper (pdf - 1.38Mb)