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Do stock prices reflect the corporate governance quality of Japanese firms?

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  • Aman, Hiroyuki
  • Nguyen, Pascal

Abstract

We construct a governance index based on several attributes known to be associated with good corporate governance. After checking that the index is positively associated with standard indicators of firm performance, we use it to evaluate the returns on governance-sorted portfolios. Our main finding is that poorly governed firms significantly outperform better-governed firms. However, this result derives from the greater risk exposure of poorly governed firms. After adjusting for size and book-to-market, excess returns become insignificant across all portfolios. We verify that neither the sample period nor the behavior of specific industries is responsible for this outcome. Consistent with market efficiency, stock prices appear to fairly reflect the higher (lower) risk associated with poor (good) corporate governance. J. Japanese Int. Economies 22 (4) (2008) 647-662.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 22 (2008)
Issue (Month): 4 (December)
Pages: 647-662

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Handle: RePEc:eee:jjieco:v:22:y:2008:i:4:p:647-662

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Web page: http://www.elsevier.com/locate/inca/622903

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Keywords: Corporate governance Performance Stock returns Risk exposure Market efficiency;

References

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Cited by:
  1. Min, Byung-Seong, 2013. "Evaluation of board reforms: An examination of the appointment of outside directors," Journal of the Japanese and International Economies, Elsevier, Elsevier, vol. 29(C), pages 21-43.
  2. repec:hit:hcfrwp:2 is not listed on IDEAS
  3. Allan Hodgson & Suntharee Lhaopadchan & Sitapa Buakes, 2011. "How informative is the Thai corporate governance index? A financial approach," International Journal of Accounting and Information Management, Emerald Group Publishing, Emerald Group Publishing, vol. 19(1), pages 53-79, March.
  4. Aman, Hiroyuki & Nguyen, Pascal, 2013. "Does good governance matter to debtholders? Evidence from the credit ratings of Japanese firms," Research in International Business and Finance, Elsevier, Elsevier, vol. 29(C), pages 14-34.
  5. Pascal Nguyen & Sophie Nivoix, 2011. "L’impact de la gouvernance sur le niveau des disponibilités des entreprises : le cas du Japon," Revue Finance Contrôle Stratégie, revues.org, revues.org, vol. 14(4), pages 66-90, December.
  6. Nguyen, Pascal, 2011. "Corporate governance and risk-taking: Evidence from Japanese firms," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 19(3), pages 278-297, June.
  7. Windsor, Duane, 2009. "Tightening corporate governance," Journal of International Management, Elsevier, Elsevier, vol. 15(3), pages 306-316, September.

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