Does Corporate Governance Matter? Evidence from the AGR Governance Rating

Do better governed firms perform better than their peers? In the academic literature, numerous studies have tackled this question with mixed success. On the one hand, there appears to be a robust statistical association between governance indices based on anti-takeover provisions and future operating performance, see e.g. Bebchuk, Cohen, and Wang (2013). On the other hand, these indices are characterized by limited time variation for a given firm, and their effects are harder to identify when focusing on finer industry definitions (Johnson, Moorman, and Sorescu (2009)). Altogether, it appears that the evidence that better governance is indeed a driving force behind a firm’s success is still far from conclusive.