Corporate governance and firm performance: The sequel

By Sanjai Bhagat, Brian J. Bolton. Journal of Corporate Finance, 2019

355 citations recorded by the source corpus.

Abstract Director stock ownership is most consistently and positively related to future corporate performance. Public policymakers and long-term investors should find this result especially relevant given their strong interest in long-term corporate performance. Equally important, corporate governance researchers should consider director stock ownership as a measure of corporate governance; this will also aid in the comparability of results across different studies. In our 2008 paper, Corporate governance and firm performance, we considered data through 2002. In this paper, we extend our sample period through 2016. These additional 14 years of data provide a powerful out-of-sample test of the specification and power of director stock ownership as a measure of corporate governance. Further, extending the period allows us to capture the dynamics of the financial crisis, the Great Recession, Sarbanes-Oxley (2002), and Dodd-Frank (2010). We find director stock ownership most consistently and positively related to future corporate performance in this out-of-sample period (2003–2016) across a battery of different specifications, estimation techniques, and for different sub-samples. One particular sub-sample of considerable public interest is the 100 largest U.S. financial institutions around 2008. Bank director stock ownership is positively related to future bank performance, and bank director stock ownership is negatively related to future bank risk, both prior to and during the financial crisis – both results of considerable interest to senior bank regulators.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/9860cf8c0fe1c4f6b154c99e1b7d65d2fb88e6c4

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Pilar Velasco
2. Mengling Zhou
3. G. D. L. Fuente
4. Margarita Ortiz
5. Kexin Li
6. Zhongfei Chen
7. G. Palaniappan

In Finance

1. Pilar Velasco
2. Mengling Zhou
3. G. D. L. Fuente
4. Margarita Ortiz
5. Kexin Li
6. Zhongfei Chen
7. G. Palaniappan

Citations in the corpus

• Corporate governance quality and financial leverage: Evidence from China (2020, methodology): “First, following Bowman (1980), we use the debt-to-equity ratio as an alternative indicator of leverage.”
• The value of a firm’s engagement in ESG practices: Are we looking at the right side? (2021, result): “2SLS results are thus more efficient and consistent than OLS estimates (Bhagat and Bolton, 2019).”
• Determinants of corporate financial performance relating to board characteristics of corporate governance in Indian manufacturing industry: An empirical study (2017, background): “Bhagat and Black (2002) in their studies found that there is no significant relationship between number of independent directors and performance of a firm.”