Business journalism forces boards to change

Media coverage of the ineffectiveness of corporate boards of directors forces those boards to take corrective actions and increases shareholder profits in the months after the negative publicity, according to new research co-authored by a professor at Penn State’s Smeal College of Business.

In a new paper forthcoming in the Journal of Financial and Quantitative Analysis, Henock Louis, associate professor of accounting at Smeal, and his co-authors look at the impact of the media on managers’ and investors’ behavior by examining how media exposure of board ineffectiveness affects corporate governance, investor trading behavior, and security prices.

Their study is based on BusinessWeek’s past publications of the worst boards of directors.

The authors find that, among the 50 unique firms that appeared on the magazine’s worst board lists in 1996, 1997, and 2000, 34 (or 68 percent) took observable steps to improve their governance structures.

“Managers’ and Investors’ Responses to Media Exposure of Board Ineffectiveness” is co-authored by Louis, Jennifer Joe of Georgia State University, and Dahlia Robinson of Arizona State University.

Read more here. Thanks to Baltimore Sun business columnist Jay Hancock for alerting us to this study.