Corporate governance and asset prices in a two-country model (original) (raw)

Corporate governance, investor protection, and performance in emerging markets

Journal of Corporate Finance, 2004

Recent research studying the link between law and finance has concentrated on countrylevel investor protection measures and focused on differences in legal systems across countries and legal families. Our paper extends this literature and provides a study of firmlevel corporate governance practices across emerging markets and a greater understanding of the environments under which corporate governance matters more. Our empirical tests show that better corporate governance is highly correlated with better operating performance and market valuation. More importantly, we provide evidence showing that firm-level corporate governance provisions matter more in countries with weak legal environments. These results suggest that well-governed firms benefit more in bad corporate governance environments and that firms can partially compensate for ineffective laws and enforcement by establishing good corporate governance and providing credible investor protection. Our tests also show that firm-level governance and performance is lower in countries with weak legal environments, suggesting that improving the legal system should rema in a priority for policymakers.

Legal protection of investors, corporate governance, and investable premia in emerging markets

Corporate Governance, and Investable Premia in Emerging Markets (January 15, 2012), 2012

Abstract: We examine the interaction between the legal protection of investors, corporate governance within firms, institutional development between countries, and investable premia in emerging markets. In a multi country setting and using a novel dataset we find that better-governed firms experience significantly greater stock price increases upon equity market liberalization. We look to see whether well-governed firms in poorly governed countries enjoy an investability premium as measured by Tobin's q. We find they do. ...

The Impact of Corporate Governance on Investment Returns in Developed and Developing Countries*

The Economic Journal, 2003

We set out to shed light on three conundrums that exist in the literature on investment: why do investments out of different sources of finance earn different returns, why do different studies report different patterns of returns, and why do companies in developing countries make greater use of external capital to finance their investment than do companies in developed countries?

Investor protection and country-level governance: cross-country empirical panel data evidence

Economic Research-Ekonomska Istraživanja

Using a cross-sectional sample of yearly observations covering 132 countries over the 2007-2012 period, this article intends to provide empirical evidence that country-level governance has an impact on the strength of investor protection. Also, when proceeding to a multiple regression analysis based on income classification, as defined by the World Bank, one can observe a different behaviour of the relationship between country-level governance (proxied using the principal component analysis method) and the strength of investor protection.

Measuring the impact of governance quality on stock market performance in developed countries

Economic Research-Ekonomska Istraživanja

The aim of this article is to examine the relationship between stock market performance and country level governance indicators. A good quality of governance in a country ensures effective implementation of laws which can protect the investor and improve stock market performance and vice versa. Our study utilises annual stock returns and country level governance indicators for 25 developed countries from 1996 to 2018. The fixed effect estimation suggests that stock market performance and governance indicators share a positive relationship. Our findings suggest that high quality of governance is associated with higher returns on stock. Institutional quality is a preconditioned for financial developed that set the direction of change to reduce transaction costs and agency costs and make profitable projects available to firms that subsequently leads to higher demand for equity financing. These findings have significant implications for stock market policymakers and standard asset pricing models that only include market risk factors to predict future expected stock returns.

Firm Investments and Corporate Governance in Asian Emerging Markets

Multinational Finance Journal, 2008

The quality of corporate governance has been shown to have wide-ranging implications, e.g., on the performance of stock markets and on exchange rates. This study investigates whether the quality of corporate governance in a country impacts investment decisions made at the micro level of the firm. The study focuses on Asian emerging markets since they have widely varying standards of corporate governance. Based on eight measures of corporate governance, four aggregate indices of corporate governance (business environment, legal environment, investor rights, and an overall measure) are developed for seven countries in the sample drawing on data from published sources. The results indicate that improvements in corporate governance mitigate the dependency of firm investments on their internal resources and facilitate access by firms to capital markets (JEL: G15, G30, G31).

Country-level Governance and Capital Markets in Asia-Pacific Region

Indian Journal of Corporate Governance, 2019

Manuscript type: An empirical analysis of the relationship between country-level governance and share markets in the Asia-Pacific region was carried out using dynamic value at risk (Dynamic VaR), mixed data sample (MIDAS) and exponential generalised autoregressive conditional heteroskedasticity (EGARCH) models. Research question/issue: Is there a relationship between a country’s governance and stock market in terms of the level of returns and share price volatility? We hypothesise that stock returns for countries with higher levels of governance will have lower ex ante expected returns and less volatility than countries with lower levels of governance. Research findings/insights: It is evident from the empirical findings that there is still significant diversity in both corporate-level governance and country-level governance within the Asia-Pacific region. The results from using mixed data sample-autoregressive distributed lag (MIDAS-ADL) model correlation between world governance i...

Corporate governance in the Asian financial crisis

Journal of financial …, 2000

The "Asian Crisis" of 1997-98 affected all the "emerging markets" open to capital flows. Measures of corporate governance, particularly the effectiveness of protection for minority shareholders, explain the extent of depreciation and stock market decline better than do standard macroeconomic measures. A possible explanation is that in countries with weak corporate governance, worse economic prospects result in more expropriation by managers and thus a larger fall in asset prices. * Helpful comments on earlier drafts were provided by

Corporate Governance in Emerging Markets and Its Impact on Finance Performance

Corporate Ownership and Control, 2014

This paper reviews the theoretical framework of Corporate Governance and multiple issues in which it is evaluated such as agency costs, asymmetric information, insider trading, manipulation of earnings, Board of Directors, etc. Finally, it is reviewed the impact of Corporate Governance over cost of equity, capital structure and financial performance

Corporate Governance, Investor Protection, and Firm Performance in Mena Countries

2011

Recent research studying the link between law and evidence showing that firm-level corporate governance finance has concentrated on country-level investor provisions matter more in countries with weak legal protection measures and focused on differences in legal environments. These results suggest that firms can systems across countries and legal families. Klapper and partially compensate for ineffective laws and Love extend this literature and provide a study of firm-enforcement by establishing good corporate governance level corporate governance practices across emerging and providing credible investor protection. The authors' markets and a greater understanding of the environments tests also show that firm-level governance and under which corporate governance matters more. Their performance is lower in countries with weak legal empirical tests show that better corporate governance is environments, suggesting that improving the legal system highly correlated with better operating performance and should remain a priority for policymakers. market valuation. More important, the authors provide This paper-a product of Finance, Development Research Group-is part of a larger effort in the group to study corporate governance around the world. Copies of the paper are available free from the World Bank,