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Journal of Finance Vol. 60 No. 6 2005

Governance Mechanisms and Equity Prices

K. J. Martijn Cremers; Vinay B. Nair1,2,3

1 Supélec · 2 University of Applied Sciences and Arts of Southern Switzerland · 3 Shandong University of Political Science and Law

open access

Abstract

We investigate how the market for corporate control (external governance) and shareholder activism (internal governance) interact. A portfolio that buys firms with the highest level of takeover vulnerability and shorts firms with the lowest level of takeover vulnerability generates an annualized abnormal return of 10% to 15% only when public pension fund (blockholder) ownership is high as well. A similar portfolio created to capture the importance of internal governance generates annualized abnormal returns of 8%, though only in the presence of “high” vulnerability to takeovers. The complementarity effect exists for firms with lower industry‐adjusted leverage and is stronger for smaller firms.

DOI
10.1111/j.1540-6261.2005.00819.x
Volume
60
Issue
6
Pages
2859-2894
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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