Corporate Governance Over the Business Cycle

Thomas Philippon ()

No 114, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: I provide empirical evidence that badly governed firms respond more to aggregate shocks than do well governed firms. I build a simple model where managers are prone to over-invest and where shareholders are more willing to tolerate such a behavior in good times. The model successfully explains the average profit differences as well as the cyclical behavior of sales, employment and investment for firms with different governance qualities. The quantitative results suggest that governance conflicts can explain 30% of aggregate volatility

Keywords: business cycles; corporate governance (search for similar items in EconPapers)
JEL-codes: E32 G3 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-acc, nep-dge and nep-mac
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Corporate governance over the business cycle (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed004:114

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