A Reexamination of Corporate Governance and Equity Prices with Updated and Supplemental Results
Review of Financial Studies, Forthcoming
78 Pages Posted: 15 Sep 2009 Last revised: 18 Oct 2011
Date Written: September 15, 2009
We reexamine long-term abnormal returns for portfolios sorted on governance characteristics. Firms with strong shareholder rights and firms with weak shareholder rights differ from the population of firms and from each other in how they cluster across industries. Using well specified tests under this industry clustering, we find statistically zero long-term abnormal returns for portfolios sorted on governance. Our results have important implications for interpreting studies that link governance to firm value and stock returns, demonstrate the importance of the coarseness of industry definitions in financial research, and shed light on addressing statistical problems created by industry clustering in samples. This version contains updated and supplemental results.
Keywords: corporate governance, stock returns, industry, simulation, market efficiency
JEL Classification: G12, G14, G34, C15
Suggested Citation: Suggested Citation