Core, John EGuay, Wayne RRusticus, Tjomme O2023-05-222023-05-222006-04-012016-06-01https://repository.upenn.edu/handle/20.500.14332/1091We investigate Gompers, Ishii, and Metrick's (2003) finding that firms with weak shareholder rights exhibit significant stock market underperformance. If the relation between poor governance and poor returns is causal, we expect that the market is negatively surprised by the poor operating performance of weak governance firms. We find that firms with weak shareholder rights exhibit significant operating underperformance. However, analysts' forecast errors and earnings announcement returns show no evidence that this underperformance surprises the market. Our results are robust to controls for takeover activity. Overall, our results do not support the hypothesis that weak governance causes poor stock returns.This is the peer reviewed version of the following article: Core, John E., Guay Wayne R., and Rusticus Tjomme O. "Does Weak Governance Cause Weak Stock Returns? An Examination of Firm Operating Performance and Investors' Expectations." The Journal of Finance 61.2 (2006): 655-87. Web., which has been published in final form at DOI: 10.1111/j.1540-6261.2006.00851.x. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving: http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms.AccountingBusiness Administration, Management, and OperationsArticle