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Corporate governance and firm performance in hybrid model countries

Author

Listed:
  • Alfonso Mendoza-Velázquez
  • Luis Carlos Ortuño-Barba
  • Luis David Conde-Cortés

Abstract

Purpose - This paper aims to examine the dynamic nexus between corporate governance (CG) and firm performance in hybrid model countries. It also investigates the effect of horizontal agency conflicts on CG adherence. Design/methodology/approach - This research uses vector autoregression methods and dynamic panels to examine the cross-sectional and longitudinal association between CG and performance, using three CG adherence indexes of transparency, management and board governance. The data set includes annual market and firm performance data from a sample of 93 companies trading in the Mexican stock market for the period 2010–2016. Findings - This study finds evidence of dynamic interdependence between CG and firm performance, as well as weak effects of CG adherence on firms’ performance. The adverse effect of increasing return on equity and return on assets (ROE-ROA) gaps on CG adherence, which results from agency conflicts and insider ownership, is likely behind the weak association between CG and firm performance. Originality/value - The findings in this study provide evidence that hybrid systems weaken the nexus between CG and firm performance. The propensity to prefer banking and bond debt to issuing stocks, as indicated by a greater ROE-ROA gap, points to favorable provisions for majority shareholders, adverse normative environments for minority shareholders and a low level of compliance with CG measures, among other problems.

Suggested Citation

  • Alfonso Mendoza-Velázquez & Luis Carlos Ortuño-Barba & Luis David Conde-Cortés, 2022. "Corporate governance and firm performance in hybrid model countries," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 21(1), pages 32-58, February.
  • Handle: RePEc:eme:rafpps:raf-10-2020-0293
    DOI: 10.1108/RAF-10-2020-0293
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    More about this item

    Keywords

    Corporate governance; Firm performance; Board; Transparency; Management; Insider ownership; Hybrid system; Civil law; Hybrid model; Corporate governance adherence; G34; G38; L51; C33;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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