This paper examines the relationship between corporate governance and equity prices, focusing on the impact of corporate-governance provisions related to takeover defenses and shareholder rights. The authors construct a "Governance Index" for about 1,500 firms per year from 1990 to 1999, using 24 different provisions. They find a strong correlation between the Governance Index and stock returns, with firms in the lowest decile of the index (strongest shareholder rights) outperforming those in the highest decile (weakest shareholder rights) by an average of 8.5% per year. The Governance Index is also highly correlated with firm value, with a one-point increase in the index associated with a 2.4 percentage point lower value for Tobin’s Q in 1990, and an 8.9 percentage point lower value in 1999. Additionally, firms with weaker shareholder rights exhibit lower profits, lower sales growth, higher capital expenditures, and more corporate acquisitions. The authors discuss several causal interpretations of these findings and their policy implications.This paper examines the relationship between corporate governance and equity prices, focusing on the impact of corporate-governance provisions related to takeover defenses and shareholder rights. The authors construct a "Governance Index" for about 1,500 firms per year from 1990 to 1999, using 24 different provisions. They find a strong correlation between the Governance Index and stock returns, with firms in the lowest decile of the index (strongest shareholder rights) outperforming those in the highest decile (weakest shareholder rights) by an average of 8.5% per year. The Governance Index is also highly correlated with firm value, with a one-point increase in the index associated with a 2.4 percentage point lower value for Tobin’s Q in 1990, and an 8.9 percentage point lower value in 1999. Additionally, firms with weaker shareholder rights exhibit lower profits, lower sales growth, higher capital expenditures, and more corporate acquisitions. The authors discuss several causal interpretations of these findings and their policy implications.