Corporate governance and the stock market reaction to new product announcements

Corporate governance and the stock market reaction to new product announcements This study examines the explanatory power of corporate governance mechanisms on the wealth effect of firms’ new product strategies. We show that board size, board independence, audit committee independence, CEO equity-based pay, analyst following and shareholder rights are all of significance in explaining the variations in the wealth effect of new product introductions. Our results reveal that the new product strategies announced by firms with better corporate governance mechanisms tend to receive higher stock market valuations than those of firms with poorer governance mechanisms. This study provides empirical support for the notion that enhanced governance mechanisms can reduce both agency and information asymmetry problems for firms announcing new products. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Corporate governance and the stock market reaction to new product announcements

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Publisher
Springer US
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-011-0248-x
Publisher site
See Article on Publisher Site

Abstract

This study examines the explanatory power of corporate governance mechanisms on the wealth effect of firms’ new product strategies. We show that board size, board independence, audit committee independence, CEO equity-based pay, analyst following and shareholder rights are all of significance in explaining the variations in the wealth effect of new product introductions. Our results reveal that the new product strategies announced by firms with better corporate governance mechanisms tend to receive higher stock market valuations than those of firms with poorer governance mechanisms. This study provides empirical support for the notion that enhanced governance mechanisms can reduce both agency and information asymmetry problems for firms announcing new products.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jul 21, 2011

References

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