Stock Market Returns, Corporate Governance and Capital Market Equilibrium

Arbeitspapier

This paper proposes a theoretical model that incorporates corporate governance into the basic CAPM, where corporate governance affects the disutility of managerial effort and the possibility of managers to divert company resources. It shows that corporate governance affects firms' stock returns and also how the quality of corporate governance is chosen endogenously. The model predicts that in equilibrium the quality of corporate governance correlates positively with â and idiosyncratic volatility and negatively with returns on assets. Various tests with U.S. firm data using the corporate governance index of Gompers, Ishii, and Metrick (2003) confirm these predictions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4496

Classification and Topics

• Classification: Wirtschaft ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Corporate Finance and Governance: Government Policy and Regulation ; Business and Securities Law
• Subject: corporate governance ; CAPM ; variability of returns

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Parigi, Bruno Maria ; Pelizzon, Loriana ; von Thadden, Ernst-Ludwig
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/89782
• Last update: 10.03.2025, 11:42 AM CET