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Board Governance and Investment Sensitivity to Stock Price: International Evidence

Published online by Cambridge University Press:  21 October 2022

Hamdi Driss Open the ORCID record for Hamdi Driss [Opens in a new window]
Hamdi Driss*
Affiliation:
Saint Mary’s University Sobey School of Business
*
[email protected]
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Abstract

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This article examines the effect of board governance on investment efficiency. I use the staggered enactment of board reforms in 41 countries as a shock to board structure that exogenously improves the quality of board oversight of managers. I find that investment-Q sensitivity improves by roughly half post-reform. This effect is more pronounced for firms that are more exposed to the reforms or when external governance mechanisms are less likely to discipline managers. These findings suggest that increased board oversight strengthens managers’ incentives to make investment decisions that are more in line with their firms’ growth opportunities.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 7 , November 2023 , pp. 3027 - 3057
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I am grateful for the comments from Kee-Hong Bae, Sadok El Ghoul, Omrane Guedhami, Paul Malatesta (the editor), Nadia Massoud, and Ronald Masulis (the referee). Any errors are my own. I appreciate the generous financial support from the Sobey School of Business and Canada’s Social Sciences and Humanities Research Council (grant number 430-2019-00512).

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