The "Wall Street Rule" (WSR), a form of monitoring by institutional investors, has been viewed as... more The "Wall Street Rule" (WSR), a form of monitoring by institutional investors, has been viewed as a "cut-and-run" strategy adopted to express dissatisfaction with a company's management. In this study, we show that WSR, far from being a passive protest, is in fact a potent weapon to improve corporate governance. We present empirical evidence that WSR is positively associated with board monitoring when the firm is endowed with an outsider-dominated board. This suggests that WSR improves stock price informativeness, providing the board with an additional source of information so that it may monitor the company more effectively. 1 Shareholder activist Robert Monks also points out, "With few options left to them, dissatisfied owners were told by the system to love it or leave." (Ending the Wall Street Walk: Why Corporate Governance Now?) http://www.corpgov.net/forums/commentary/ending.html 2 Although WSR and "exit" have usually been viewed as selling one's shares only, in this study we adopt the view that, as in Edmans and Manso (2011), investors can both buy and sell depending on the prospect of a firm so that stock prices become informative.
Using unique and proprietary daily trade data from qualified market participants, our study empir... more Using unique and proprietary daily trade data from qualified market participants, our study empirically investigates the impact of trading aggressiveness on firm performance and the moderating impact of equity-based compensation and block ownership. Based on a dataset including 3,775,646 daily trades by 35 qualified market participants for 414 New Zealand Exchange (NZX) listed firms over the period 1996-2011, we find that aggressive trading does not consistently improve firm performance across all trading measures and after addressing endogeneity concern. Our findings even hold among firms with CEO equity-based compensation and high level of block ownership. Our study challenges the crucial role of CEO equity-based pay and block ownership in the theory of "governance through trading".
The "Wall Street Rule" (WSR), a form of monitoring by institutional investors, has been viewed as... more The "Wall Street Rule" (WSR), a form of monitoring by institutional investors, has been viewed as a "cut-and-run" strategy adopted to express dissatisfaction with a company's management. In this study, we show that WSR, far from being a passive protest, is in fact a potent weapon to improve corporate governance. We present empirical evidence that WSR is positively associated with board monitoring when the firm is endowed with an outsider-dominated board. This suggests that WSR improves stock price informativeness, providing the board with an additional source of information so that it may monitor the company more effectively. 1 Shareholder activist Robert Monks also points out, "With few options left to them, dissatisfied owners were told by the system to love it or leave." (Ending the Wall Street Walk: Why Corporate Governance Now?) http://www.corpgov.net/forums/commentary/ending.html 2 Although WSR and "exit" have usually been viewed as selling one's shares only, in this study we adopt the view that, as in Edmans and Manso (2011), investors can both buy and sell depending on the prospect of a firm so that stock prices become informative.
Using unique and proprietary daily trade data from qualified market participants, our study empir... more Using unique and proprietary daily trade data from qualified market participants, our study empirically investigates the impact of trading aggressiveness on firm performance and the moderating impact of equity-based compensation and block ownership. Based on a dataset including 3,775,646 daily trades by 35 qualified market participants for 414 New Zealand Exchange (NZX) listed firms over the period 1996-2011, we find that aggressive trading does not consistently improve firm performance across all trading measures and after addressing endogeneity concern. Our findings even hold among firms with CEO equity-based compensation and high level of block ownership. Our study challenges the crucial role of CEO equity-based pay and block ownership in the theory of "governance through trading".
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Papers by Brandon Chen