The Stock Market Reaction to the Introduction of Best Practices Codes by Spanish Firms

This paper analyses the market reaction to announcements made by Spanish firms of compliance with the code of best practice. It also attempts to determine how the characteristics of different firms may account for the excess returns observed. The results suggest that the market reacts positively to announcements of compliance with the code of best practice that imply a major restructuring of the board of directors, whereas no wealth effects are observed for announcements that relate to isolated recommendations in the code. These wealth effects are greater for lower levered firms, and also greater the higher the percentage of executive directors.