Corporate governance indices and firms' market values: Time series evidence from Russia (original) (raw)
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This paper aims to add to the literature on the connection between corporate governance and company valuation. Conventional wisdom predicts a positive effect of good governance on stock price, and empirical papers claim to have proven this effect for a number of large emerging markets including Russia. We refer to the case of Russian banks to suggest that this connection cannot be established in a convincing way due to data scarcity. A cross-industry panel fails to regard the specificity of financial firms, and a single-industry panel of banks might be unfeasible due to the sheer number of eligible firms. A selection of banks would be biased in favor of publicly listed entities and has little chance of being a wholly representative for the entire industry. Russia's stock market can supply sufficient statistical material for a study involving just two large statecontrolled banks. While 20 or so banks maintain some presence in the organized segment of the stock market, over 90 percent of all trading in bank shares and their market capitalization involves the stock of Sberbank and VTB. For them, however, the appropriateness of the market price as the sole comprehensive indicator of performance can be challenged on principle because they have stakeholders who pursue a combination of financial and non-financial goals and assess bank performance differently. The case of Russian banks reveals a critical scarcity of stock market data, so the results of some empirical studies might be attributable to their authors' opinion. This discussion is potentially relevant for other economies that share institutional characteristics such as high ownership concentration, shallowness of the stock market, and substantial role of statecontrolled firms.
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The price of stock like any other commodity goes up and down due to a number of factors. Corporate governance is one of important determinants of stock price. This paper makes an attempt to study exclusively the relationship between corporate governance score and stock prices of a company. The research involves a study of the KSE -30 index companies. The independent variable (Corporate governance score) and dependent variable (company's share price) have identified for the two years 2009 and 2010. In the analysis our hypothesis corporate governance score and stock prices is significant. Hence, this study concludes that better governed firms have higher stock prices and vice versa. This is due to the fact that better managed firms will perform better and as result stock prices will increase.
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We study the corporate governance practices of Turkish public firms from 2006 to 2012, relying on hand-collected data covering the vast majority of listed firms. We build a Turkey Corporate Governance Index, TCGI, composed of subindices for board structure, board procedure, disclosure, ownership, and shareholder rights. TCGI predicts higher market value (with firm fixed effects) and higher firm-level profitability with firm random effects. The principal subindex which predicts higher market value and profitability, and drives the results for TCGI as a whole, is disclosure subindex. We also study the determinants of firms' governance and find that most firm-specific factors have little effect on firms' governance choices.
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This study investigates the impact of corporate governance indicators on firm value as substitutes for "other information" variables in the Ohlson valuation model. The study applies the Ohlson (1995) valuation model to analyze 61 companies listed on Classification 1 and 2 of the Mongolian Stock Exchange (MSE) during the period of 2007-2022. The corporate governance indicators considered in the study are the governance level, type of control, and shareholding structure. The empirical findings reveal the significant impact of these governance indicators on firm value, indicating that they can be useful substitutes for the "other information" variables in the Ohlson model. These results provide insights for policymakers and managers to enhance corporate governance practices in their firms, which can lead to increased firm value and better financial performance.
This paper tries to establish a link between effectiveness of corporate governance practices and market performance of forty three firms listed, as of the end of 2014, in Borsa Istanbul Corporate Governance Index (BIST XKURY). Drawn on the data set obtained from the annual reports and financial statements of the firms for the period of 2007-2014. panel data analysis revealed that higher corporate governance ratings result in increased market values. The results of the study indicate that together with corporate governance ratings, return on equity and earning per share have positive relationships with market value, too. There is, however, significant negative relationship between free float rate and market value.
Can governance quality predict stock market returns? New global evidence
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We develop country-level governance indices using governance risk factors and examine whether or not such country-level governance can predict stock market returns. Given the heterogeneous nature of governance in different countries, this study provides evidence of stock market return predictability. We find that country-level governance only predicts stock market returns of countries characterised by poor governance quality. For countries with welldeveloped governance, there is no evidence that governance predicts returns. Our findings indicate that investors in countries with weak governance can utilise information contained in governance measures to devise profitable trading strategies.
Does corporate governance predict firms' market values? Evidence from Korea
Journal of Law, Economics, and …, 2006
We report strong OLS and instrumental variable evidence that an overall corporate governance index is an important and likely causal factor in explaining the market value of Korean public companies. We construct a corporate governance index (KCGI, 0;100) for 515 Korean companies based on a 2001 Korea Stock Exchange survey. In OLS, a worst-to-best change in KCGI predicts a 0.47 increase in Tobin's q (about a 160% increase in share price). This effect is statistically strong (t ¼ 6.12) and robust to choice of market value variable (Tobin's q, market/book, and market/sales), specification of the governance *Hayden W. 366 JLEO, V22 N2 index, and inclusion of extensive control variables. We rely on unique features of Korean legal rules to construct an instrument for KCGI. Good instruments are not available in other comparable studies. Two-stage and three-stage least squares coefficients are larger than OLS coefficients and are highly significant. Thus, this article offers evidence consistent with a causal relationship between an overall governance index and higher share prices in emerging markets. We also find that Korean firms with 50% outside directors have 0.13 higher Tobin's q (roughly 40% higher share price), after controlling for the rest of KCGI. This effect, too, is likely causal. Thus, we report the first evidence consistent with greater board independence causally predicting higher share prices in emerging markets. 46/463 0.089 90%