In our paper, The Vote is Cast: The Effect of Corporate Governance on Shareholder Value, which was recently made publicly available on SSRN, we present novel evidence of the effect of corporate governance on the market value and long-term performance of firms. We use a regression discontinuity model on the outcomes of votes on governance proposals in shareholder meetings. We exploit the fact that firms that pass a proposal by a close margin are ex-ante similar to those that reject it by a close margin, so that passing a provision is “locally” exogenous. Therefore, this approach provides a causal estimate and overcomes the endogeneity problems that have plagued the literature thus far. In addition, our empirical strategy also allows us to recover an estimate of the effect of governance even if the market had already incorporated the probability of passing the shareholder proposal into stock prices. This is because, proposals that fall around the majority threshold were ex-ante the most uncertain, such that investors could not perfectly predict whether they would pass or not. It is for these proposals that we are able to observe a price reaction.
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