Learning and the disappearing association between governance and returns

The correlation between governance indices and abnormal returns documented for 1990–1999 subsequently disappeared. The correlation and its disappearance are both due to market participants' gradually learning to appreciate the difference between good-governance and poor-governance firms. Consis...

Full description

Saved in:
Bibliographic Details
Published in:Journal of financial economics 2013-05, Vol.108 (2), p.323-348
Main Authors: Bebchuk, Lucian A., Cohen, Alma, Wang, Charles C.Y.
Format: Article
Language:English
Subjects:
Abnormal returns
Analyst forecasts
Asset pricing
Behavioral finance
Board of directors
Business management
Business valuation
Corporate governance
Correlation analysis
E-Index
Earning announcements
Earnings
Earnings announcements
Entrenchment
Financial economics
Firm value
G-Index
GIM
Governance indices
IRRC provisions
Learning
Market efficiency
Organizational behaviour
Organizational learning
Shareholder rights
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The correlation between governance indices and abnormal returns documented for 1990–1999 subsequently disappeared. The correlation and its disappearance are both due to market participants' gradually learning to appreciate the difference between good-governance and poor-governance firms. Consistent with learning, the correlation's disappearance was associated with increases in market participants' attention to governance; market participants and security analysts were, until the beginning of the 2000s but not subsequently, more positively surprised by the earning announcements of good-governance firms; and, although governance indices no longer generated abnormal returns during the 2000s, their negative association with firm value and operating performance persisted.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2012.10.004