The Impact of Exogenous Corporate Governance Changes on Innovation and Market Value

Lei Gao and Andrey Zagorchev ()
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Lei Gao: College of Business, Iowa State University, 3342 Gerdin Business Building Ames, IA 50011-1350, USA
Andrey Zagorchev: Department of Business, Rhodes College, Memphis, TN 38112, USA

Quarterly Journal of Finance (QJF), 2018, vol. 08, issue 01, 1-40

Abstract: We investigate how exogenous corporate governance changes in terms of anti-takeover provisions affect the innovation and market value of the firm. Consistent with our conjecture, using triple difference-in-differences models, we find that the unexpected changes in the interpretation of the case law cause a decrease in innovation for Delaware firms with classified boards, entrenched managers, and in less competitive industries. We also show that after the case rulings for Delaware firms, lower (higher) innovation activities are associated with lower (higher) market values. Our results are robust to inclusion of conventional governance measures, alternative model specifications, and different measures of innovation.

Keywords: Innovation; laws; market competition; corporate governance; market value (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S2010139218400013

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