Governance and firm value: The effect of a recession

Mustafa Dah ()

Research in International Business and Finance, 2016, vol. 37, issue C, 464-476

Abstract: This paper examines the relationship between the firm's governance structure and its value during different economic conditions. We show that both relative industry turnover and CEO entrenchment increase during economic downturns. We also find that relative industry turnover and managerial entrenchment have opposite impacts on the value of the firm throughout the recessionary period. While industry turnover leads to an appreciation in firm value, managerial entrenchment reduces shareholders’ wealth. The negative impact of managerial entrenchment on firm value, however, outweighs the positive impact of industry turnover. Accordingly, we propose that a recession provides managers with a good opportunity to camouflage their behavior and extract more private benefits and, thus, blame the poor performance on bad economic conditions.

Keywords: Governance; Managerial turnover; Managerial entrenchment; Recession; Firm performance (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:37:y:2016:i:c:p:464-476

DOI: 10.1016/j.ribaf.2016.01.013

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