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The vote is cast: the effect of corporate governance on shareholder value

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  • Cuñat, Vicente
  • Giné, Mireia
  • Guadalupe, Maria

Abstract

This paper estimates the effect of corporate governance provisions on shareholder value and long-term outcomes in S&P1500 firms. We apply a regression discontinuity design to shareholder votes on governance proposals in annual meetings. A close-call vote around the majority threshold is akin to a random outcome, allowing us to deal with prior expectations and the endogeneity of internal governance rules. Passing a corporate governance provision generates a 1.3% abnormal return on the day of the vote with an implied market value per provision of 2.8%. We also find evidence of changes in investment behavior and long-term performance improvements.

Suggested Citation

  • Cuñat, Vicente & Giné, Mireia & Guadalupe, Maria, 2010. "The vote is cast: the effect of corporate governance on shareholder value," LSE Research Online Documents on Economics 119079, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:119079
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    More about this item

    Keywords

    agency cost; corporate governance; shareholder meetings; regression discontinuity; event studies;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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