Governing Misvalued Firms
Dalida Kadyrzhanova and
Matthew Rhodes-Kropf ()
No 19799, NBER Working Papers from National Bureau of Economic Research, Inc
Equity overvaluation is thought to create the potential for managerial misbehavior, while monitoring and corporate governance curb misbehavior. We combine these two insights from the literatures on misvaluation and governance to ask 'when does governance matter?' Examining firms with standard long-run measures of corporate governance as they are shocked by plausible misvaluation, we provide consistent evidence that firm performance is impacted by governance when firms become overvalued - overvaluation causes weaker performance in poorly governed firms. Our findings imply that firm oversight is important during market booms, just when stock prices suggest all is well.
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
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