Corporate Governance, Expected Operating Performance, and Pricing
AbstractWe examine whether ownership and governance characteristics are associated with the firm s operating performance and stock price. We hypothesize that while ownership structure and governance mechanisms impact the firm's operating performance, they can also impact stakeholders abilities to expropriate rents from other stakeholders. We use a two-step estimation approach to assess whether the benefits of a better governance system manifest as higher operating performance, or as a premium on share price. To mitigate potential problems from using conventional accounting performance measures, we use Ohlson s (1995) expected residual income (ERI) valuation metric, which is conceptually superior to conventional measures. Results suggest that (1) higher share ownership of the CEO, corporate insiders, and outside directors has a strong positive impact on both firm performance (measured by the ERI metric) and market value; (2) large ownership of outside shareholders has a negative impact on the firm s operating performance; (3) presence of a controlling shareholder has an adverse distributive effects for other shareholders; (4) after controlling for ownership, there is no improvement in operating performance or share value from having greater representation of outside directors, or having a larger board; and (5) variables representing the CEO s stature the CEO s tenure and the board chairmanship have a negative impact on the firm.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm108.
Date of creation: 04 Dec 1998
Date of revision:
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Hwang, Dar-Yeh & Wu, Wei-Hsiung, 2007. "Financial system reform in Taiwan," Journal of Asian Economics, Elsevier, vol. 18(1), pages 21-41, February.
- Enalto de Oliveira Gondrige & Ademir Clemente & Márcia Maria dos Santos Bortolocci Espejo, 2012. "Composition of the board and firm value of brazilian public companies," Brazilian Business Review, Fucape Business School, vol. 9(3), pages 71-93, July.
If references are entirely missing, you can add them using this form.