Corporate Governance, Investment Activity and Future Excess Returns

Persistent Link:
http://hdl.handle.net/10150/195797
Title:
Corporate Governance, Investment Activity and Future Excess Returns
Author:
Fisher, Lance
Issue Date:
2007
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
In this dissertation, I investigate whether corporate governance affects the negative association between investment and future excess returns. Shareholders are concerned with the effectiveness of the firm's governance regime as a tool to reduce agency costs. In the absence of strong control over firm assets, managers may choose to invest in value-decreasing projects. The probability that managers select value-decreasing projects is an increasing (decreasing) function in investment activity (governance regime). At the time of investment, the capital market prices expected returns to the investment activity conditioned on the governance regime in place. This study examines future risk-adjusted returns to investment activities conditioned on low and high governance regimes. If the market correctly prices the governance environment and the expected returns to expenditures at time t, there should be no future risk-adjusted returns to either governance or expenditure information. I find that for firms with low external monitoring, and separately, for firms with high shareholder rights, lower (higher) investment activity results in positive (negative) future risk-adjusted returns. Implementing a trading strategy which holds low investment firms and shorts high investment firms results in 7.1% and 5.6% annual risk-adjusted returns when conditioned on low institutional holdings and high shareholder right, respectively. This study also provides preliminary evidence that outside blockholder and activist ownership is effective in mitigating the negative association between investment activity and future excess returns through the shareholder rights mechanism. Finally, I provide evidence that the diversification discount associated with multi-segment firms is generally invariant to investment activity levels.
Type:
text; Electronic Dissertation
Keywords:
Corporate governance; investment activity; future excess returns; institutional owners; shareholder rights; activist and blockholder owners
Degree Name:
PhD
Degree Level:
doctoral
Degree Program:
Accounting; Graduate College
Degree Grantor:
University of Arizona
Advisor:
Dhaliwal, Dan S.
Committee Chair:
Dhaliwal, Dan S.

Full metadata record

DC FieldValue Language
dc.language.isoENen_US
dc.titleCorporate Governance, Investment Activity and Future Excess Returnsen_US
dc.creatorFisher, Lanceen_US
dc.contributor.authorFisher, Lanceen_US
dc.date.issued2007en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractIn this dissertation, I investigate whether corporate governance affects the negative association between investment and future excess returns. Shareholders are concerned with the effectiveness of the firm's governance regime as a tool to reduce agency costs. In the absence of strong control over firm assets, managers may choose to invest in value-decreasing projects. The probability that managers select value-decreasing projects is an increasing (decreasing) function in investment activity (governance regime). At the time of investment, the capital market prices expected returns to the investment activity conditioned on the governance regime in place. This study examines future risk-adjusted returns to investment activities conditioned on low and high governance regimes. If the market correctly prices the governance environment and the expected returns to expenditures at time t, there should be no future risk-adjusted returns to either governance or expenditure information. I find that for firms with low external monitoring, and separately, for firms with high shareholder rights, lower (higher) investment activity results in positive (negative) future risk-adjusted returns. Implementing a trading strategy which holds low investment firms and shorts high investment firms results in 7.1% and 5.6% annual risk-adjusted returns when conditioned on low institutional holdings and high shareholder right, respectively. This study also provides preliminary evidence that outside blockholder and activist ownership is effective in mitigating the negative association between investment activity and future excess returns through the shareholder rights mechanism. Finally, I provide evidence that the diversification discount associated with multi-segment firms is generally invariant to investment activity levels.en_US
dc.typetexten_US
dc.typeElectronic Dissertationen_US
dc.subjectCorporate governanceen_US
dc.subjectinvestment activityen_US
dc.subjectfuture excess returnsen_US
dc.subjectinstitutional ownersen_US
dc.subjectshareholder rightsen_US
dc.subjectactivist and blockholder ownersen_US
thesis.degree.namePhDen_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineAccountingen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorDhaliwal, Dan S.en_US
dc.contributor.chairDhaliwal, Dan S.en_US
dc.contributor.committeememberBens, Danielen_US
dc.contributor.committeememberTrombley, Marken_US
dc.contributor.committeememberYao, Tongen_US
dc.identifier.proquest2055en_US
dc.identifier.oclc659747134en_US
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