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An Integrated Framework of Corporate Governance and Firm Valuation

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  • Stefan Beiner
  • Wolfgang Drobetz
  • Markus M. Schmid
  • Heinz Zimmermann

Abstract

Recent empirical research shows evidence of a positive relationship between the quality of firm‐specific corporate governance and firm valuation. Instead of looking at one single corporate governance mechanism in isolation, we construct a broad corporate governance index and apply five additional variables related to ownership structure, board characteristics, and leverage to provide a comprehensive description of firm‐level corporate governance for a representative sample of Swiss firms. To control for potential endogeneity of these six governance mechanisms, we develop a system of simultaneous equations and apply three‐stage least squares (3SLS). Our results support the widespread hypothesis of a positive relationship between corporate governance and firm valuation.

Suggested Citation

  • Stefan Beiner & Wolfgang Drobetz & Markus M. Schmid & Heinz Zimmermann, 2006. "An Integrated Framework of Corporate Governance and Firm Valuation," European Financial Management, European Financial Management Association, vol. 12(2), pages 249-283, March.
    • Handle: RePEc:bla:eufman:v:12:y:2006:i:2:p:249-283
    DOI: 10.1111/j.1354-7798.2006.00318.x
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    References listed on IDEAS

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    1. Hellwig, Martin, 1998. "On the economics and politics of corporate finance and corporate control," Papers 98-43, Sonderforschungsbreich 504.
    2. Davide Lombardo & Marco Pagano, 1999. "Legal Determinants of the Return on Equity," CSEF Working Papers 24, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Dec 2000.
    3. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
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