1 Corporate Governance and Stock Price Crashes
We investigate whether firms with strong corporate governance exhibit lower firm specific future stock price crashes. Results show that ownership structure, accounting opacity, as well as board structure and processes influence future crashes. These findings are more pronounced for firms that operate in less competitive industries and those with higher returns uncertainty. Further investigation of the responsiveness of crashes to changes in the corporate governance measures highlights that changes in ownership structure and CEO incentives are associated with significant changes in future crashes. 1 Andreou and Louca are from the Cyprus University of Technology, Department of Commerce, Finance and Shipping, and Visiting Research Fellows at Durham Business School. Antoniou and Horton are from Exeter University Business School, U.K. Emails: panayiotis.andreou@cut.ac.cy, c.antoniou@exeter.ac.uk, J.Horton@exeter.ac.uk and christodoulos.louca@cut.ac.uk. We thank Richard Harris, Rajesh Tharyan, Grzegorz Trojanowksi and seminar participants at Exeter Business School for useful comments and suggestions. All remaining errors are our own. 2 Corporate Governance and Stock Price Crashes This version: March 2012 [Preliminary Version] Abstract We investigate whether firms with strong corporate governance exhibit lower firm specific future stock price crashes. Results show that ownership structure, accounting opacity, as well as board structure and processes influence future crashes. These findings are more pronounced for firms that operate in less competitive industries and those with higher returns uncertainty. Further investigation of the responsiveness of crashes to changes in the corporate governance measures highlights that changes in ownership structure and CEO incentives are associated with significant changes in future crashes.We investigate whether firms with strong corporate governance exhibit lower firm specific future stock price crashes. Results show that ownership structure, accounting opacity, as well as board structure and processes influence future crashes. These findings are more pronounced for firms that operate in less competitive industries and those with higher returns uncertainty. Further investigation of the responsiveness of crashes to changes in the corporate governance measures highlights that changes in ownership structure and CEO incentives are associated with significant changes in future crashes.