Corporate Governance and Firm Value: International Evidence

Abstract

In this paper, we investigate the relation between firm-level corporate governance and firm value based on a large and previously unused dataset from Governance Metrics International (GMI) comprising 6,663 firm-year observations from 22 developed countries over the period from 2003 to 2007. Based on a set of 64 individual governance attributes we construct two alternative additive corporate governance indices with equal weights attributed to the governance attributes and one index derived from a principal component analysis. For all three indices we find a strong and positive relation between firm-level corporate governance and firm valuation. In addition, we investigate the value relevance of governance attributes that document the companies' social behavior. Regardless of whether these attributes are considered individually or aggregated into indices, and even when "standard" corporate governance attributes are controlled for, they exhibit a positive and significant effect on firm value. Our findings are robust to alternative calculation procedures for the corporate governance indices and to alternative estimation techniques.

Earnings Quality: A Missing Link between Corporate Governance and Firm Value

“…They also find that there is an extensive discrepancy in the firm level corporate governance among various economies, and that corporate governance level is lower in economies having weaker legal system. Ammann, Oesch, and Schmid (2011) studies the nature of the governance-value relationship by taking 22 developed countries for the years 2003 to 2007. They develop three various corporate governance indices and find a significant positive association between corporate governance and firm value.…”

“…The results show that the firms are performing better due to the implementation of the corporate governance code in Pakistan. Ammann et al (2011) state two reasons those may boost the value of firm. Firstly, better governance mechanism leads to higher prices of stocks as investors know that they would get higher cash flows in their dividends and increased shareholders' wealth.…”

Effect of Corporate Governance Structure on the Financial Performance of Johannesburg Stock Exchange (JSE)-Listed Mining Firms

“…An indication that money spent on improving firms' governance is worth the cost. Similarly, a study examining the relationship between firm-level corporate governance and firm value based on data from Governance Metrics International for 2300 companies from 22 developed countries for the period 2003-2007, concludes that corporate governance is an opportunity rather than an obligation and real cost factor [33].…”

Facing the Regulators: Noncompliance With Detailed Mandatory Compensation Disclosure in Brazil

“…However, the average administrator pay in the larger Brazilian firms is greater (Pinto and Leal, 2013). It is possible that larger firms are less Firms that adopt better corporate governance practices are associated with greater valuations and more independent-minded BODs that may limit potentially damaging self-serving acts of controlling shareholders (Ammann, Oesch, and Schmid, 2011;Dahya et al 2008;Leal and Carvalhal-da-Silva, 2007). Announcements of negative conflict of interest related news are received with declines in market valuations in Brazil and so are changes in regulation unfavorable to minority shareholders (Silveira and Dias Jr., 2009).…”