More from the Author

• Article | Journal of Financial Economics | 2013

  Learning and the Disappearing Association Between Governance and Returns

  Lucian A. Bebchuk, Alma Cohen and Charles CY Wang

  The correlation between governance indices and abnormal returns documented for 1990–1999 subsequently disappeared. The correlation and its disappearance are both due to market participants' gradually learning to appreciate the difference between good-governance and poor-governance firms. Consistent with learning, the correlation's disappearance was associated with increases in market participants' attention to governance; market participants and security analysts were, until the beginning of the 2000s but not subsequently, more positively surprised by the earning announcements of good-governance firms; and, although governance indices no longer generated abnormal returns during the 2000s, their negative association with firm value and operating performance persisted.

  Keywords: Corporate Governance; Investment Return; Operations; Performance; Value; Learning; Business Earnings; Behavioral Finance;

  Citation:

  Bebchuk, Lucian A., Alma Cohen, and Charles CY Wang. "Learning and the Disappearing Association Between Governance and Returns." Journal of Financial Economics 108, no. 2 (2013): 323–348.

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• Article | Journal of Accounting & Economics | 2013

  Boardroom Centrality and Firm Performance

  David F. Larcker, Eric C. So and Charles CY Wang

  Firms with central or well-connected boards of directors earn superior risk-adjusted stock returns. Initiating a long position in the most central firms and a short position in the least central firms earns an average risk-adjusted return of 4.68% per year. Firms with central boards also experience higher future growth in return-on-assets (ROA) with analysts failing to fully reflect this information in their earnings forecasts. Return prediction, growth in ROA, and analyst forecast errors are concentrated among firms with high growth opportunities or firms confronting adverse circumstances, consistent with boardroom connections mattering most for firms that stand to benefit most from the information communicated and resources exchanged through the network of board members. Overall, our results suggest that board of director networks provide economic benefits that are not immediately reflected in stock prices.

  Citation:

  Larcker, David F., Eric C. So, and Charles CY Wang. "Boardroom Centrality and Firm Performance." Journal of Accounting & Economics 55, nos. 2-3 (2013): 225–250.

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• Working Paper | HBS Working Paper Series | 2013

  How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment

  Alma Cohen and Charles CY Wang

  The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings―separated by several weeks and going in opposite directions―that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by documenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms.

  Keywords: corporate governance; staggered board; takeover defense; antitakeover provision; proxy fight; Tobin's Q; firm value; agency cost; Delaware; chancery court; Airgas;

  Citation:

  Cohen, Alma, and Charles CY Wang. "How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment." Harvard Business School Working Paper, No. 13–068, February 2013. (Revised May 2013.)

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