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COVID-19: Firm Value and Pre-Existing Corporate Governance Regulations

Author

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  • Masanori Orihara

    (Department of Policy and Planning Sciences, Faculty of Engineering, Information and Systems, University of Tsukuba)

Abstract

We find that compliance to corporate governance regulations shields firm value in the COVID19 era. We consider the Japanese corporate governance code introduced just four years before its outbreak as a suitable setting. The code recommends, not mandates, that firms appoint at least two outside directors. Stock markets appreciated immediate minimal compliers, firms that had minimally met the recommendation right after its introduction and maintained minimal compliance afterwards, relative to others from December 2019 to November 2020. Overcompliers did not differ from others, which implies that strong governance as such does not contribute to firm value in crises. The positive valuation was clustered among domestic nonmanufacturers: a sector directly damaged by the reduced mobility due to COVID-19. The findings are consistent with reputational bonding and governance theories that predict bonding to better governance has more weight in crises than in normal times.

Suggested Citation

  • Masanori Orihara, 2023. "COVID-19: Firm Value and Pre-Existing Corporate Governance Regulations," Working Papers 2218, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:2218
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    More about this item

    Keywords

    Outside Director; Firm Value; Bonding Hypothesis; COVID-19; Regulation; Japan;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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