The econometrics of corporate governance studies / Sanjai Bhagat and Richard H. Jefferis, Jr - Sanjai Bhagat

A vast theoretical and empirical literature in corporate finance
considers the interrelationships of corporate governance, takeovers, management
turnover, corporate performance, corporate capital structure, and corporate
ownership structure. Most of the studies look at two variables at a time. In this
book, Sanjai Bhagat and Richard Jefferis argue that from an econometric viewpoint,
the proper way to study the relationship between any two of these variables is to
set up a system of simultaneous equations that specifies the relationships among the
six variables. The specification and estimation of such a system of simultaneous
equations, however, is nontrivial.The authors illustrate their argument with a
discussion of the impact of corporate anti-takeover measures on takeovers and
managerial job-tenure. During the past two decades, an overwhelming majority of
publicly held US corporations have adopted anti-takeover measures. The authors show
that, contrary to expectation, defense measures are ineffective in preventing
takeovers and the frequency of CEO departures is unrelated to takeover defenses. At
firms with poison pill defenses, however, there is a statistically significant
relationship between management turnover and company performance.