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Corporate Governance and Firm Performance: Results from Greek Firms

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  • Toudas, Kanellos
  • Karathanassis, George

Abstract

In this paper, we construct a Governance Index for a sample of Greek companies quoted on the Athens Stock Exchange. We then classify firms, using each firm governance index, into three governance portfolios. Furthermore, the Fama and French model, extended to include a momentum variable, is tested for each of the three governance portfolios. Our findings suggest that most of the firms in our sample are semi-democracies followed by democracies and dictatorships respectively. Good governance appears to be of value in as much as we found higher Tobin’s q ratios for democracies followed by semi-democracies and dictatorships. We, also, report significant negative abnormal returns for shareholder-friendly and manager-friendly firms. The findings of significant negative abnormal returns are consistent with inefficient capital markets. At a practitioner level, the results imply that firms should practice vigorously good governance, as it is a policy of value to shareholders and possibly to other stakeholders.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6414.

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Date of creation: 20 Dec 2007
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Handle: RePEc:pra:mprapa:6414

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Keywords: Corporate Governance; Firm Performance; Democratic and Dictatorship Firms;

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References

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  1. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2002. "Corporate Governance and Equity Prices," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 02-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
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  15. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
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  17. John, Kose & Senbet, Lemma W., 1998. "Corporate governance and board effectiveness1," Journal of Banking & Finance, Elsevier, vol. 22(4), pages 371-403, May.
  18. Lucian Arye Bebchuk & Lars A. Stole, 1994. "Do Short-Term Managerial Objectives Lead to Under- or Over-Investment in Long-Term Projects," NBER Technical Working Papers 0098, National Bureau of Economic Research, Inc.
  19. Lena Tsipouri & Manolis Xanthakis, 2004. "Can Corporate Governance be Rated? Ideas based on the Greek experience," Corporate Governance: An International Review, Wiley Blackwell, Wiley Blackwell, vol. 12(1), pages 16-28, 01.
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