The Impact of Regulatory Governance Mandates on Poorly Governed Firms
The Harvard Law School Forum on Corporate Governance and Financial Regulation 2012-05-28
In our paper, The Impact of Regulatory Governance Mandates on Poorly Governed Firms, which was recently made publicly available on SSRN, we investigate the relation between regulatory governance mandates and firm value by assessing the impact of recent governance mandates on the firms that were most affected by changes in governance regulation. We exploit the cross-sectional variation in compliance with governance mandates in the pre-regulatory period to identify firms that were most affected by the governance mandates promulgated by congressional action and the associated changes to NYSE and Nasdaq listing requirements (“affected firms”) and firms that were less affected by such mandates (“control firms”). We use propensity score trimming (Crump et al. 2009; Imbens and Wooldridge 2009) to form a sample of affected and control firms that display covariate balance, facilitating comparisons across the pre- (1996 through 2004) and post-regulatory (2005 through 2009) periods. An important objective of recent governance mandates was to improve board monitoring. Hence, we identify affected and control firms using the governance mandates most closely related to board monitoring (please see our paper for more details). Our research design helps to mitigate endogeneity concerns by combining a quasi-natural experiment with the identification of firms differentially affected by the regulatory governance mandates.