Corporate Governance and Firms' Market Values: Time Series Evidence from Russia

There is increasing evidence that broad measures of firm-level corporate governance predict higher share prices. However, almost all prior work relies on cross-sectional data. This work leaves open the possibility that endogeneity or omitted firm-level variables explain the observed correlations. We address the second possibility by offering time-series evidence from Russia for 1999-present, exploiting a number of available governance indices. We find an economically important and statistically strong correlation between governance and market value in OLS with firm clusters and in firm random effects and firm fixed effects regressions. We also find significant differences in the predictive power of different indices, and in the components of these indices. How one measures governance matters.Russia, corporate governance, corporate governance index, law and finance, firm valuation, disclosure, emerging markets

Shareholder Passivity Reexamined

This article argues that shareholder monitoring is possible: It\u27s an idea that hasn\u27t been tried, rather than an idea that has failed. I defer to a second article currently in draft the question of whether more monitoring by institutional shareholders is desirable. Will direct shareholder oversight, or indirect oversight through shareholder-nominated directors, improve corporate performance, prove counterproductive, or, perhaps, not matter much one way or the other? What are the benefits and risks in giving money managers - themselves imperfectly monitored agents - more power over corporate managers? If more shareholder voice is desirable, how much more and for what issues? Which of the many relevant rules ought to be loosened, which tightened, and by how much, in light of the various purposes - often unrelated to shareholder voting - that those rules serve? For all of these questions, the answers may well be different for different institutions. This article proceeds as follows. Part II summarizes the views of the naysayers who invoke collective action problems to explain why shareholders will rarely do anything. Part III reviews the principal state and federal rules that affect, and mostly obstruct, shareholder activism. Part IV discusses recent developments in institutional stock ownership and voting behavior that make the passivity story obsolete. These developments include rapid growth in ownership by less-conflicted public pension funds and mutual funds, increasing shareholder activism with public funds as the most visible actors, and the formation of trade groups that can facilitate collective shareholder action. Part V presents a theoretical model of the incentives of shareholder proponents that sheds light on shareholder incentives to remain passive, and the importance of scale economies in reducing those incentives. Part VI models the incentives of nonproponent shareholders to become informed or remain rationally apathetic. Part VII addresses the importance of agenda control in determining substantive outcomes. Part VIII examines the incentives of the major types of institutional investors, and the conflicts of interest that they face. Part IX is a conclusion

Can Corporate Governance Reforms Increase Firms\u27 Market Values: Evidence from India

A central problem in studying the valuation effects of corporate governance reforms is that most reforms affect all firms in a country. Thus, if share prices move when governance reforms are announced, the price changes may reflect the reforms, but could also reflect other new information. We address this identification issue by studying India’s adoption in 2000 of major governance reforms (Clause 49), a number of which resemble and predate Sarbanes Oxley. Clause 49 requires, among other things, audit committees, a minimum number of independent directors, and CEO/CFO certification of financial statements and internal controls. The reforms were sponsored by the Confederation of Indian Industry (an organization of large Indian public firms), applied initially to larger firms, and reached smaller public firms only after a several-year lag. The difference in effective dates offers a natural experiment: Large firms are the treatment group for the reforms. Small firms provide a control group for other news affecting India generally. If investors consider the reforms to be valuable (or more valuable for larger firms), large firms\u27 share prices should react positively to reform announcements, relative to small firms. The May 1999 announcement by Indian securities regulators of plans to adopt what became Clause 49 is accompanied by a roughly 4% increase in the price of large firms over a (0,+1) event window, relative to smaller public firms; the difference grows to 7% over a (0,+4) window. Mid-sized firms had an intermediate reaction

Ranking Law Schools: Using SSRN to Measure Scholarly Performance

There are several methods for ranking the scholarly performance of law faculties, including reputation surveys (U.S. News, Leiter); publication counts (Lindgren and Seltzer, Leiter); and citation counts (Eisenberg and Wells, Leiter). Each offers a useful but partial picture offaculty performance. We explore here whether the new beta SSRN-based measures (number of downloads and number ofposted papers) can offer a different, also useful, albeit also partial, picture. Our modest claim is that SSRNbased measures can address some of the deficiencies in these other measures and thus play a valuable role in the rankings tapestry. For example, SSRN offers real-time data covering most American law schools and many foreign law schools, while citation and publication counts appear sporadically and cover a limited number of U.S. schools. The SSRN measures favor work with audiences across disciplines and across countries, while other measures are more law-centric and U.S.-centric. SSRN is relatively new and thus favors younger scholars and improving schools, while other measures favor more established scholars and schools. At the same time, the SSRN measures have important field and other biases, as well as gaming risks. We assess the correlations among the different measures, both on an aggregate and on a per-faculty member basis. We find that all measures are strongly correlated; that total and per faculty measures are highly correlated; and that SSRN measures based on number of papers are highly correlated with measures based on number of downloads. Among major schools, all measures also correlate with school size. Symposium: The Next Generation of Law School Rankings held April 15, 2005 at Indiana University School of Law-Bloomington

Does Venture Capital Require an Active Stock Market?

The United States has both an active venture capital industry and well-developed stock markets. Japan and Germany have neither. We argue here that this is no accident – that venture capital can flourish especially – and perhaps only – if the venture capitalist can exit from a successful portfolio company through an initial public offering (IPO), which requires an active stock market. Understanding the link between the stock market and the venture capital market requires understanding the contractual arrangements between entrepreneurs and venture capital providers especially the importance of exit by venture capitalists and the opportunity, present only if IPO exit is possible, for the venture capitalist and the entrepreneur to enter into an implicit contract over control, in which a successful entrepreneur can reacquire control from the venture capitalist by using an IPO as the means of exit

The Relation between Firm-Level Corporate Governance and Market Value: a Study of India

Relatively little is known about the corporate governance practice of firms in emerging markets. We provide a detailed overview of the practices of publicly traded firms in India, and identify areas where governance practices are relatively strong or weak, relative to developed countries. We also examine whether there is a cross-sectional relationship between measures of governance and measures of firm performance and find evidence of a positive relationship for an overall governance index and for an index covering shareholder rights. The association is stronger for more profitable firms and firms with stronger growth opportunities

Hail Britannia?: Institutional Investor Behavior Under Limited Regulation

A central puzzle in understanding the governance of large American public firms is why most institutional shareholders are passive. Why would they rather sell than fight? Until recently, the Berle-Means paradigm – the belief that separation of ownership and control naturally characterizes the modern corporation – reigned supreme. Shareholder passivity was seen as an inevitable result of the scale of modern industrial enterprise and of the collective action problems that face shareholders, each of whom owns only a small fraction of a large firm\u27s shares. A paradigm shift may be in the making, however. Rival hypotheses have recently been offered to explain shareholder passivity. According to a new political theory of corporate governance, financial institutions in the United States are not naturally apathetic but rather have been regulated into submission by legal rules that – sometimes intentionally, sometimes inadvertently – hobble American institutions and raise the costs of participation in corporate governance