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Governance and firm value: The effect of a recession

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  • Dah, Mustafa A.

Abstract

This paper examines the relationship between the firm's governance structure and its value during different economic conditions. We show that both relative industry turnover and CEO entrenchment increase during economic downturns. We also find that relative industry turnover and managerial entrenchment have opposite impacts on the value of the firm throughout the recessionary period. While industry turnover leads to an appreciation in firm value, managerial entrenchment reduces shareholders’ wealth. The negative impact of managerial entrenchment on firm value, however, outweighs the positive impact of industry turnover. Accordingly, we propose that a recession provides managers with a good opportunity to camouflage their behavior and extract more private benefits and, thus, blame the poor performance on bad economic conditions.

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  • Dah, Mustafa A., 2016. "Governance and firm value: The effect of a recession," Research in International Business and Finance, Elsevier, vol. 37(C), pages 464-476.
    • Handle: RePEc:eee:riibaf:v:37:y:2016:i:c:p:464-476
    DOI: 10.1016/j.ribaf.2016.01.013
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    2. Akbar, Saeed & Poletti-Hughes, Jannine & El-Faitouri, Ramadan & Shah, Syed Zulfiqar Ali, 2016. "More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation," Research in International Business and Finance, Elsevier, vol. 38(C), pages 417-429.
    3. Belanès, Amel & Saihi, Malek, 2016. "Evidence on complementarity and substitution contingency in monitoring and bonding mechanisms," Research in International Business and Finance, Elsevier, vol. 38(C), pages 161-171.
    4. Waseem, Fareeha, 2023. "Impact of Managerial Entrenchment on Firm Performance," OSF Preprints hmuab, Center for Open Science.
    5. Joel Rudin & Jooh Lee, 0. "The Impact of Corporate Reputation Ratings on CEO Compensation Under Diverse Economic Conditions," Corporate Reputation Review, Palgrave Macmillan, vol. 0, pages 1-11.
    6. Al Dah, Bilal, 2018. "Monitoring or empowering CEOs? The moderating effect of shareholder rights," Research in International Business and Finance, Elsevier, vol. 46(C), pages 502-515.
    7. Lailah Fujianti, 2018. "Top Management Characteristics and Company Performance: An Empirical Analysis on Public Companies Listed in the Indonesian Stock Exchange," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 62-76.
    8. Al Dah, Bilal & Michael, Amir & Dixon, Rob, 2017. "Antitakeover provisions and CEO monetary benefits: Revisiting the E-index," Research in International Business and Finance, Elsevier, vol. 42(C), pages 992-1004.

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