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Corporate governance and equity prices



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Working Paper

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Recent evidence suggests that Gompers, Ishii and Metrick (2003)’s stock return results are not robust to industry adjustments. Specifically, other authors find that industry-adjusted returns on GIM’s governance portfolio are statistically zero during the 1990s. However, these authors only use three-digit SIC codes to construct their industry adjustments. Using a much wider range of common industry classification standards, I find little evidence that unexpected industry performance explains the return on governance-sorted portfolios during the 1990s. In particular, I find that the majority of tests with the strongest size and power properties in my sample yield positive industry-adjusted abnormal returns on GIM’s governance portfolio during the 1990s. My results have implications for future governance research and highlight the inherent tradeoff between industry coarseness and statistical power in calendar-time tests.


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