Corporate-governance ratings and company performance: a cross-European study
AbstractManuscript Type: Empirical Research Question/Issue: Prior studies have failed to unequivocally establish a positive relationship between corporategovernance ratings and company performance, although theoretically, we would expect to find one. In this paper, we try to establish whether a positive relationship exists through modeling the relationship more carefully. Research Findings/Insights: After controlling for selection bias and endogeneity simultaneously, we find a significant positive relationship between corporate-governance ratings and performance. However, the strength of this relationship seems to depend on the quality of the institutional environment. Finally, we find that improvements in corporate-governance ratings over time result in decreasing marginal benefits in terms of performance. Theoretical/Academic Implications: Our paper contributes to the literature by showing that improved corporategovernance ratings lead to better performance, but that econometric problems might obscure this relationship.We also show that for a sample of developed countries the institutional environment affects the relationship between governance ratings and performance. Finally, this paper contributes to the literature on the impact, regarding compliance and effectiveness, of codes of good governance. Practitioner/Policy Implications: Our results are relevant for both companies and policy makers. They indicate that companies can improve performance by adhering to good corporate-governance practices. For policy makers,the findings suggest that soft laws and the invisible hand of the market lead to companies improving their corporate governance.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/256982.
Date of creation: Mar 2010
Date of revision:
Publication status: Published in Corporate Governance (2010-03) v.18, p.87-106
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Web page: http://www.kuleuven.be
Corporate Governance; Performance; Europe; Institutions; Econometrics;
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"Disclosure on Corporate Governance in the European Union,"
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- Vander Bauwhede, Heidi & Willekens, Marleen, 2008. "Disclosure on corporate governance in the European Union," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/198151, Katholieke Universiteit Leuven.
- Ntim, collins g & Opong, kwaku k & Danbolt, jo, 2010. "Corporate governance, affirmative action and firm value: evidence from post-apartheid South African firms," MPRA Paper 32297, University Library of Munich, Germany, revised 04 Aug 2011.
- Zorica Kalezić, 2012. "Corporate governance and firm performance with special reference to the banking system: empirical evidence from Monetengro," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 1(2), pages 19-54.
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