A Reexamination of Corporate Governance and Equity Prices

Posted: 8 Dec 2009

See all articles by Shane A. Johnson

Shane A. Johnson

Texas A&M University - Department of Finance

Theodore C. Moorman

affiliation not provided to SSRN

Sorin M. Sorescu

Texas A&M University; Adam C. Sinn `00 Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: November 2009

Abstract

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.

JEL Classification: C1, C52, G11, G12, G14, G34

Suggested Citation

Johnson, Shane A. and Moorman, Theodore C. and Sorescu, Sorin M., A Reexamination of Corporate Governance and Equity Prices (November 2009). The Review of Financial Studies, Vol. 22, Issue 11, pp. 4753-4786, 2009, Available at SSRN: https://ssrn.com/abstract=1519271 or http://dx.doi.org/hhp018

Shane A. Johnson (Contact Author)

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

Theodore C. Moorman

affiliation not provided to SSRN

Sorin M. Sorescu

Texas A&M University ( email )

Mays Business School
College Station, TX 77843
United States
979-458-0380 (Phone)

HOME PAGE: http://wehner.tamu.edu/finc.www/ssorescu/

Adam C. Sinn `00 Department of Finance ( email )

4218 TAMU
College Station, TX Texas 77843-4218
United States
979-458-0380 (Phone)

HOME PAGE: http://mays.tamu.edu/directory/ssorescu/

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