How Important is Corporate Governance?

77 Pages Posted: 28 Sep 2004

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business; European Corporate Governance Institute (ECGI); Stanford University - Arthur & Toni Rembe Rock Center for Corporate Governance

Scott A. Richardson

AQR Capital Management, LLC; London Business School

A. Irem Tuna

London Business School

Date Written: May 2005

Abstract

We examine the relation between a broad set of corporate governance indicators and various measures of managerial decision making and organizational performance. Using a sample of 2,106 firms, we distill 39 structural measures of corporate governance (e.g., board characteristics, stock ownership, institutional ownership, activist stock ownership, existence of debt-holders, mix of executive compensation, and anti-takeover variables) into 14 governance constructs using principal components analysis. We find that these 14 constructs are related to operating performance, have a somewhat mixed association with abnormal accruals, Tobin's Q, and excess stock returns, and little relation to class action lawsuits and accounting restatements.

Keywords: Corporate governance

JEL Classification: G34, M41, M43, M49, G32

Suggested Citation

Larcker, David F. and Richardson, Scott Anthony and Tuna, Ayse Irem, How Important is Corporate Governance? (May 2005). Available at SSRN: https://ssrn.com/abstract=595821 or http://dx.doi.org/10.2139/ssrn.595821

David F. Larcker

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Stanford University - Arthur & Toni Rembe Rock Center for Corporate Governance ( email )

Crown Quadrangle 559 Nathan Ab
Stanford, CA 94305-8610
United States

Scott Anthony Richardson

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Ayse Irem Tuna (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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