Despite a great deal of interest by institutional investors and others in the issue of corporate governance, there is surprisingly little empirical evidence linking governance practices with firm performance. This dissertation examines the link between corporate governance practices and firm performance, acknowledging the endogenous nature of the relationship. I begin by defining corporate governance as a set of constraints and incentives on managers and shareholders bargaining to determine how the value of the firm will be allocated. In chapter one, I examine an unbalanced panel of 1,721 firms from 1980 to 1995, which includes each firm's charter and bylaw provisions, existence of a poison pill, applicable state anti-takeover laws, and board composition data, combined with financial data from CRSP and Compustat. This chapter provides the stylized facts about corporate governance today and details how governance practices have evolved over time. It also provides an explanation as to why shareholders would be willing to adopt governance provisions that have the potential to constrain their future allocations of firm value. I document that firms adopting governance provisions requiring shareholder approval tend to out perform benchmark portfolios prior to adoption and firms adopting poison pills under perform benchmark portfolios prior to adoption. I find that firms tend to under-perform benchmark portfolios following the adoption of governance provisions that are potentially harmful to shareholders. I find no relationship between CEO age, tenure, or compensation surrounding governance changes. In chapter two, I investigate the relationship between corporate governance practices and firm performance by examining firms where the constraints imposed by the governance system are most likely to be binding, i.e., firms that have experienced significant declines in quarterly operating performance. My results suggest that firms covered by fair price charter amendments and/or state control share acquisition statutes take longer to recover from declines in operating performance. I also examine firms with significant negative shocks in quarterly earnings, and find the persistence of these shocks is greater in firms covered by a freeze out statute and the persistence is lower in firms covered by cash out statutes, findings consistent with some governance features constraining shareholder value.
| Identifer | oai:union.ndltd.org:arizona.edu/oai:arizona.openrepository.com:10150/288976 |
| Date | January 1999 |
| Creators | Nelson, James Michael |
| Contributors | Weisbach, Michael S. |
| Publisher | The University of Arizona. |
| Source Sets | University of Arizona |
| Language | en_US |
| Detected Language | English |
| Type | text, Dissertation-Reproduction (electronic) |
| Rights | Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author. |
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