The Finance Brown Bag Seminar is held by the Institute for Finance, Banking and Insurance (WU Vienna) and the Vienna Graduate School of Finance (VGSF). It serves as a presentation platform for PhD students, faculty members, and visitors. An overview of BBS on the website of the Institute for Finance, Banking and Insurance.
June 19th, 2019, 12:00-13:30, D4.0.144
Sanjai Bhagat, University of Colorado
Title: "Corporate Governance and Firm Performance: The Sequel"
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.