Learning and the disappearing association between governance and returns

Lucian A. Bebchuk, Alma Cohen and Charles C.Y. Wang

Journal of Financial Economics, 2013, vol. 108, issue 2, 323-348

Abstract: 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.

Keywords: Corporate governance; Governance indices; GIM; G-Index; E-Index; Shareholder rights; Entrenchment; Market efficiency; Learning; Earning announcements; Analyst forecasts; IRRC provisions; Behavioral finance; Asset pricing (search for similar items in EconPapers)
JEL-codes: D03 G10 G12 G30 G34 K22 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (77)

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Working Paper: Learning and the Disappearing Association Between Governance and Returns (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:108:y:2013:i:2:p:323-348

DOI: 10.1016/j.jfineco.2012.10.004

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