This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

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Using daily stock returns: The case of event studies

The event study is an important research tool in economics and finance. The goal of an event study is to measure the effects of an economic event on the value of firms. Event study methods exploit the fact that, given rationality in the marketplace, the effects of an event will be reflected immediately in security prices. Thus the impact can be measured by examining security prices surrounding the event. In this paper event study methods are described including some of the potential complications. An example is included to illustrate the approach.

http://www.business.unr.edu/faculty/liuc/files/BADM742/MacKinlay_1997.pdf

Event Studies in Economics and Finance

http://mx.nthu.edu.tw/~jtyang/Teaching/Corporate_Governance/Papers/Jensen,%20Ruback%201983.pdf

The market for corporate control: The scientific evidence☆

For some, it is an article of faith that governmentowned firms must be less efficient or, at least, less profitable than privately owned firms. Maxim Boycko et al. (1996) argue that politicians cause government-owned firms to employ excess labor inputs. Anne O. Krueger (1990) suggests that such firms may be pressured to hire politically connected people rather than those best qualified to perform desired tasks. More generally, government-owned firms are thought to forgo maximum profit in the pursuit of social and political objectives, such as wealth redistribution. In addition, the residual cash flow claims of these firms are not readily transferable like the shares of a private corporation. This impairs residual claimant incentives to monitor managers and, ultimately, degrades firm performance. As a consequence, one expects government-owned firms to be technically less efficient and, therefore, less profitable than private firms. The implication is that in competitive markets without significant externalities private ownership is the superior organizational form. The view that government firms are inherently less efficient than private ones, however, remains controversial among economists. John Vickers and George Yarrow (1991), among others, point out that agency problems arise in private firms as well as public ones. In most large private corporations managers own little of the stock. Because monitoring managers is costly, a divergence arises between their objectives and those of private shareholders. Private shareholders typically hold a small stake in any one firm and it may not pay any shareholder to bear the cost of monitoring management. It follows from this discussion that whether government firms are more or less efficient than private firms is primarily an empirical issue. To date the body of empirical evidence is mixed. In this paper, we report further empirical evidence on the relative efficiency of public and private enterprises. We build on previous work by studying larger samples over longer time periods and by allowing for additional factors that influence firm performance. In particular, our analysis controls for time-series variation in the general level of economic activity that may otherwise confound performance comparisons between government and private firms. 2 We approach the issue in two different ways. First, using accounting numbers, we conduct a large-sample cross-sectional comparison of government-owned and privately owned corporations. This comparison is similar in design to that of Boardman and Vining (1989), but our sample is three times the size of theirs and includes three

State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity

https://faculty.washington.edu/phmalat/WorkingPapers/drft071702.pdf

Managerial succession and firm performance

Judging from prior writings, many researchers and practitioners think shareholder-initiated corporate governance proposals promote value-maximizing policies. These proposals are regarded as serving an important role in the governance of public corporations. Our findings, however, do not support this view. Shareholder-initiated corporate governance resolutions tend to target poorly performing firms, as measured by market-to-book ratio, operating return, and recent sales growth. This suggests that their sponsors seek improvements. We find little evidence, however, that proposals increase share values or spur performance improvements. The average wealth effects associated with shareholder-initiated corporate governance proposals are not significantly different from zero. Sales growth subsequently declines for firms receiving proposals relative to sales growth for control firms. And changes in operating return on sales are not significantly larger for proposal firms than their controls. We also find little evidence that shareholder proposals are associated with significant changes in firm policy. Turnover among chief executive officers is not significantly higher among firms that previously attracted proposals than for other firms matched by industry and size. We find that some of the firms attracting successful proposals changed managers or restructured operations, but such changes typically were motivated by external control threats, not the shareholder proposals. Even proposals receiving a majority of share votes are not associated systematically with significant changes in target firms' policies or stock values.

Paul H. Malatesta

Papers

State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity

Managerial succession and firm performance

Corporate Governance and Shareholder Initiatives: Empirical Evidence

The wealth effect of merger activity and the objective functions of merging firms

Corporate governance and shareholder initiatives: Empirical evidence