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Governance, information flow, and stock returns

  • A. Dumitrescu*
  • , Mohammed Zakriya
  • *Corresponding author for this work

Research output: Indexed journal article › Article › peer-review

11 Citations (Scopus)
12 Downloads (Pure)

Abstract

We analyze the evolution of governance-returns relationship in the last three decades and show that poor governance stocks outperform good governance ones after 2008. Previously, good governance stocks outperformed poor governance ones before this relationship disappeared in 2001. The novel reversal and reappearance of the relationship in 2008 can be explained by sophisticated investors learning to recognize governance risks and becoming more prudent after the global financial crisis. Our results show that investors could have identified via price and risk channels that the poorly governed firms face higher uncertainty regarding their future earnings power after 2008. Furthermore, following the crisis, we observe that institutional investors update their governance preferences through information-induced learning.

Original languageEnglish
Article number102168
Pages (from-to)1-32
Number of pages32
JournalJournal of Corporate Finance
Volume72
DOIs
Publication statusPublished - Feb 2022

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

  1. SDG 16 - Peace, Justice and Strong Institutions
    SDG 16 Peace, Justice and Strong Institutions

Keywords

  • Anti-takeover provisions
  • Corporate governance
  • E-Index
  • Institutional investors
  • Learning

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