Does Corporate Governance Compliance Increase Company Value? Evidence from the Best Practice of the Board

Abstract

Drawing upon agency theory, we address the limitations of best practice code in the context of emerging governance, emphasizing the role of concentrated ownership. While the code provisions were formulated in developed countries, the transfer of one-size-fits-all guidelines may not address the characteristics and challenges of emerging and post-transition economies. Specifically, we emphasize that provisions of corporate governance codes are aimed at solving the principal–agent conflict between shareholders and managers. These guidelines may remain limited in addressing principal–principal conflicts between majority and minority shareholders and have either a lesser effect on valuation or none at all. Using a unique sample of 155 companies listed on the Warsaw Stock Exchange during the period 2006–2015, with hand-collected data from declarations of conformity, we tested the hypotheses on the link between corporate governance compliance (with board) practice and company value. The period of 2006–2015 was chosen deliberately, due to the relative stability of corporate governance code recommendations over this time. The results of our panel model reveal a negative and statistically significant relation between corporate governance compliance and company value. We contribute to the existing literature providing new evidence on compliance practice in the context of concentrated ownership, and the limited effect of code provisions in addressing structural challenges of corporate governance in emerging post-transition economies and hierarchy-based control systems.

The Impact of Corporate Governance Quality on Firm Value: A Case Study on Corporate Governance Index of Borsa Istanbul

“…It was that the results obtained are related to the studies' outputs Nugroho (2020), Sitorus and Sitorus (2017), Ararat et al (2017), Çelik et al (2017), Yenice and Dölen (2013), Klimczak and Szafranski (2013), Chen et al (2010) in the same direction. However, the results are inversely related to the studies of Stender and Rojahn (2020), Aluchna and Kuszewski (2020), Taufik et al (2018), Kavcar and Gümrah (2017). In addition, the results are neutrally related to studies of Özçelik (2017), Leung, et al (2014), Jia andLian (2013).…”

“…Analysis outputs showed that corporate governance mechanism variables such as board size, corporate ownership and non-corporate ownership significantly affect the firm's value (Tobin's Q). Aluchna and Kuszewski (2020) the hypotheses on the link between corporate governance compliance (with board) practice and company value by using a sample of 155 companies listed on the Warsaw Stock Exchange during the period 2006-2015. The results of the Panel Data Regression model of the research, measured by Tobin's Q, disclosed a negative and statistically significant relationship between corporate governance compliance and company value.…”

The Impact of Corporate Governance Mechanism over Financial Performance: Evidence from Romania

“…Corporate governance has been shown to increase transparency in financial reporting [51]. Multiple studies that examine the influence of corporate governance on financial performance [52][53][54][55][56] or the influence of compliance with corporate governance codes on financial performance-through the apply or explain principle [57][58][59]-show that the existence of corporate governance practices/mechanisms positively influence financial performance.…”

Institutional Investors’ Shareholding, Control Transfer and Corporate Performance

“…Second, institutional investors with more shareholdings may appoint relevant persons who can represent their own interests to the board of directors, use the identity of directors to collect internal information related to the company"s operation and financial situation, and strengthen the supervision of private interests of management and controlling shareholders. Third, institutional investors can play a positive role in governance by improving the salary incentive design of listed companies and inhibiting the management"s earnings management behavior and promote corporate performance (Aluchna & Kuszewski, 2020).…”