What matters in corporate governance?

"We investigate which provisions, among a set of twenty-four governance provisions followed by the Institutional Investors Research Center (IRRC), are correlated with firm value and stockholder returns. Based on this analysis, we put forward an entrenchment index based on six provisions -- four “constitutional” provisions that prevent a majority of shareholders fromhaving their way (staggered boards, limits to shareholder bylaw amendments, supermajorityrequirements for mergers, and supermajority requirements for charter amendments), and two“takeover readiness” provisions that boards put in place to be ready for a hostile takeover (poisonpills and golden parachutes). We find that increases in the level of this index are monotonicallyassociated with economically significant reductions in firm valuation, as measured by Tobin's Q. We also find that firms with higher level of the entrenchment index were associated with largenegative abnormal returns during the 1990-2003 period. Furthermore, we find that the provisionsin our entrenchment index fully drive the correlation, identified by prior work, that the IRRCprovisions in the aggregate have with reduced firm value and lower stock returns during the1990s. We find no evidence that the other eighteen IRRC provisions are negatively correlatedwith either firm value or stock returns during the 1990-2003 period"--John M. Olin Center for Law, Economics, and Business web site.