Does good corporate governance really work? More evidence from CalPERS

Abstract

The California Public Employee Retirement System (CalPERS) asserts ‘Our activism creates significant value for our members and all shareholders’. As evidence for this claim, CalPERS cites Anson et al. (‘The Shareholder Wealth Effects of CalPERS' Focus List’, Journal of Applied Corporate Finance, 15, 8–17, 2003), who show that positive excess (abnormal) returns from focus list firms average about 12 per cent for the 90 days following targetings between 1992 and 2001. In a follow-up study, Anson et al. (‘Good Corporate Governance Works: More Evidence from CalPERS’, Journal of Asset Management, 5, 149–56, 2004) show excess returns of 59 per cent for the 365 trading days following CalPERS' targeting. This study finds that their results are driven by a significant bias in their market model alphas caused by estimation during periods of known underperformance and compounded over unnecessarily long event windows. When their analysis is repeated using parameters estimated post-event, no evidence of significant abnormal returns attributable to CalPERS activism is found. When shorter event windows immediately surrounding the announcement of the CalPERS focus lists are examined, no evidence that the market values CalPERS activism is found. Contrary to the results of Anson et al. (2003, 2004), after addressing various methodological concerns, this study finds no evidence of any shareholder wealth effects attributable to CalPERS activism.