Corporate Governance and Shareholder Wealth: Interest Alignment Hypothesis Revisited

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Abstract

This paper explains the conflicting evidence found on agency theory in previous literature. This is achieved by introducing interaction variables between three of the main governance mechanisms used to mitigate agency problems: Shareholder rights, CEO ownership and board independence. Findings suggest that board independence and the market for corporate control act as substitutes. Board independence has a positive (negative) effect on firm value for firms with a weak (strong) governance structure. Results also show that antitakeover provisions increase the entrenching effect of CEO ownership on firm value.

Authors

• Bilal Al Dah, Savannah State University

• Amir Michael, Durham University

• Rob Dixon, Durham University