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The Wall Street Rule and its Impact on Board Monitoring

Access Status
Open access
Authors
Chen, B.
Duong, Lien
Truong, T.
Date
2018
Type
Conference Paper

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Citation
Chen, B. and Duong, L. and Truong, T. 2018. The Wall Street Rule and its Impact on Board Monitoring. In Accounting and Finance Association of Australia and New Zealand (AFAANZ) Annual Conference, 1-3 Jul 2018, Auckland, NZ.
Source Conference
Accounting and Finance Association of Australia and New Zealand (AFAANZ) Annual Conference
Faculty
Faculty of Business and Law
School
School of Accounting
URI
Collection
Abstract

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.