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The Impact of Corporate Governance on the Market Value of Financial Institutions - Empirical Evidences from Italy

Author

Listed:
  • Bubbico, Rossana
  • Giorgino, Marco
  • Monda, Barbara

Abstract

This paper analyses how the quality of the corporate governance system impacts on the market value of the financial institutions listed on the Italian Stock Exchange. Implementing a good corporate governance is costly, therefore verifying whether the investment is worth its cost is a relevant issue. Despite the central role that financial institutions play in the real economy, there are few studies that focus specifically on the financial industry; filling this gap in literature is especially relevant to Italy, where the enterprises are highly dependent on the banking system for their financing needs. The first step of the present study is the assessment of the corporate governance quality of the sample companies through the Corporate Governance Index (CGI). CGI is a scoring model that analyses four different macro-areas of governance: Board, Compensation, Shareholders’ and Stakeholders’ Rights, and Disclosure. A Cross-sectional data regression is then used to study the relationship between the corporate governance quality and the market value of financial institutions. The analysis, using 2010 data, proves that there is a positive and statistically significant correlation between corporate governance and performance: this finding supports the hypothesis that governance creates value for companies and that investments to implement effective governance systems give net positive benefit and should therefore be pursued. Hence financial institutions should be encouraged to improve their corporate governance systems.

Suggested Citation

  • Bubbico, Rossana & Giorgino, Marco & Monda, Barbara, 2012. "The Impact of Corporate Governance on the Market Value of Financial Institutions - Empirical Evidences from Italy," MPRA Paper 45419, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:45419
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    File URL: https://mpra.ub.uni-muenchen.de/45419/1/MPRA_paper_45419.pdf
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    References listed on IDEAS

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    5. Polo, Andrea, 2007. "Corporate governance of banks: the current state of the debate," MPRA Paper 2325, University Library of Munich, Germany.
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    Cited by:

    1. Monda, Barbara & Giorgino, Mrco, 2013. "Corporate Governance and Shareholder Value in Listed Firms: An Empirical Analysis in Five Countries (France, Italy, Japan, UK, USA)," MPRA Paper 45422, University Library of Munich, Germany.

    More about this item

    Keywords

    Corporate Governance; Corporate Governance Index; Banks performance; Governance of financial institutions;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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

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