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Managers’ and Investors’ Responses to Media Exposure of Board Ineffectiveness

Published online by Cambridge University Press:  01 June 2009

Jennifer R. Joe ,
Henock Louis  and
Dahlia Robinson
Jennifer R. Joe
Affiliation:
Robinson College of Business, Georgia State University, PO Box 4050, Atlanta, GA 30302. accjrj@langate.gsu.edu
Henock Louis
Affiliation:
Smeal College of Business, Pennsylvania State University, 319 Business Building, University Park, PA 16802. hul4@psu.edu
Dahlia Robinson
Affiliation:
College of Business, University of South Florida, 4202 E. Fowler Ave., BSN3403, Tampa, FL 33620. drobinso@coba.usf.edu
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Abstract

We analyze the impact of the press on the behavior of various economic agents by examining how media exposure of board ineffectiveness affects corporate governance, investor trading behavior, and security prices. Our focus on board quality is motivated by the strong media criticism to which corporate boards and corporate America, in general, have been recently subjected. The results indicate that media releases of (noisy) information have significant economic consequences. In particular, media exposure of board ineffectiveness forces the targeted agents to take corrective actions and enhances shareholder wealth. Individual investors appear to react negatively to the media exposure, whereas investment firms act as if they anticipate the targeted firms’ corrective actions.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 44 , Issue 3 , June 2009 , pp. 579 - 605
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2009

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