Governance Mechanisms and Equity Prices
Open accessAbstract
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.
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Cremers and Nair (2005) use an index based on four of the provisions in the GIM index and show that it is negatively correlated with Tobin's Q, but they do not attempt to show either that other provisions do not matter or that each of the provisions used in their index matters.
“In prior work, Cremers and Nair (2005) use an index based on four of the provisions in the GIM index and show that it is negatively correlated with Tobin's Q, but they do not attempt to show either that other provisions do not matter or that each of the provisions used in their index matters”
From What Matters in Corporate Governance? (2009) · cites this paper as Cremers and Nair (2005)
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Experimental — accuracy not yet measuredFollowing Gompers, Ishii, and Metrick's initial finding of correlation between the GIM index and lower stock returns during 1990-1999, subsequent work did not find such correlation in a period extended forward to include the beginning of this decade.
“Following the initial finding by Gompers, Ishii, and Metrick (2003) of correlation between the GIM index and lower stock returns during the period 1990-1999, subsequent work did not find such correlation in a period extended forward to include the beginning of this decade [Cremers and Nair (2005)].”
From What Matters in Corporate Governance? (2009) · cites this paper as Cremers and Nair (2005)
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… and the Cross-Section of Expected Returns
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“In prior work, Cremers and Nair (2005) use an index based on four of the provisions in the GIM index and show that it is negatively correlated with Tobin’s Q, but they do not attempt to show either that other provisions do not matter or that each of the provisions used in their index matters (and, indeed, our results…”
MethodResultInfluentialUndoing the powerful anti-takeover force of staggered boards
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Corporate Governance and Long-Run Risk Premia 
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- Authors
- CREMERS, K. J. M., & NAIR, V. B.
- Affiliations
- Tilburg University (NL)
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2005-11-10
- Volume
- 60
- Issue
- 6
- Pages
- 2859-2894
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W3121220918
- Cited by
- 1,220
- References
- 5
- Citations by year
- 2026: 15 · 2025: 18 · 2024: 31 · 2023: 38 · 2022: 33 · 2021: 47 · 2020: 50 · 2019: 56 · 2018: 55 · 2017: 68 · 2016: 62 · 2015: 70 · 2014: 91 · 2013: 76 · 2012: 70
- FWCI
- 254.90
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Locations
- The Journal of Finance (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Business, Management and Accounting › Accounting › Private Equity and Venture Capital
- Keywords
- corporate governance, stock prices, market for corporate control, shareholder activism, takeover vulnerability, public pension funds, blockholders, abnormal returns, complementarity effects, firm size, leverage, short selling
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