The Vote Is Cast: The Effect of Corporate Governance on Shareholder Value





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    • Vicente Cuñat, London School of Economics; Mireia Gine, WRDS University of Pennsylvania and Public-Private Sector Research Center, IESE Business School; Maria Guadalupe, INSEAD, NBER, CEPR, and IZA. We are grateful to Ashwini Agrawal; Ann Bartel; Ken Chay; Jeff Coles; Jan Eeckhout; Ray Fisman; Laurie Hodrick; Denis Gromb; Raymond Lim; Marco Manacorda; Zacharias Sautner; David Yermack; and seminar participants at Brown University, Columbia Business School, the University of Edinburgh, Goethe University, LeBow College of Business Conference on Corporate Governance, the London School of Economics, University of Michigan, the New York University Paduano Seminar, and the University of Oregon for their helpful comments and suggestions. The usual disclaimer applies.


This paper investigates whether improvements in the firm's internal corporate governance create value for shareholders. We analyze the market reaction to governance proposals that pass or fail by a small margin of votes in annual meetings. This provides a clean causal estimate that deals with the endogeneity of internal governance rules. We find that passing a proposal leads to significant positive abnormal returns. Adopting one governance proposal increases shareholder value by 2.8%. The market reaction is larger in firms with more antitakeover provisions, higher institutional ownership, and stronger investor activism for proposals sponsored by institutions. In addition, we find that acquisitions and capital expenditures decline and long-term performance improves.