The Impact of Corporate Governance on the Market Value of Financial Institutions - Empirical Evidences from Italy
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.
|Date of creation:||May 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Himmelberg, Charles P. & Hubbard, R. Glenn & Palia, Darius, 1999.
"Understanding the determinants of managerial ownership and the link between ownership and performance,"
Journal of Financial Economics,
Elsevier, vol. 53(3), pages 353-384, September.
- Charles P. Himmelberg & R. Glenn Hubbard & Darius Palia, 2000. "Understanding the Determinants of Managerial Ownership and the Link Between Ownership and Performance," NBER Working Papers 7209, National Bureau of Economic Research, Inc.
- Himmelberg, C.P. & Hubbard, R.G. & Palia, D., 1997. "Understanding the Determinants of Mangerial Ownership and the Link Between Ownership and Performance," Papers 97-21, Columbia - Graduate School of Business.
- Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-90, June.
- Polo, Andrea, 2007. "Corporate governance of banks: the current state of the debate," MPRA Paper 2325, University Library of Munich, Germany.
- Andres, Pablo de & Vallelado, Eleuterio, 2008. "Corporate governance in banking: The role of the board of directors," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2570-2580, December.
- Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer, 2000.
"Government Ownership of Banks,"
Harvard Institute of Economic Research Working Papers
1890, Harvard - Institute of Economic Research.
- Rafael La Porta & Florencio Lopezde-Silanes & Andrei Shleifer, 2000. "Government Ownership of Banks," NBER Working Papers 7620, National Bureau of Economic Research, Inc.
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "Government Ownership of Banks," Working Paper Series rwp01-016, Harvard University, John F. Kennedy School of Government.
- Benjamin E. Hermalin & Michael S. Weisbach, 2003.
"Boards of directors as an endogenously determined institution: a survey of the economic literature,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Apr, pages 7-26.
- Benjamin E. Hermalin & Michael S. Weisbach, 2001. "Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature," NBER Working Papers 8161, National Bureau of Economic Research, Inc.
- Emilia Peni & Sami Vähämaa, 2012. "Did Good Corporate Governance Improve Bank Performance during the Financial Crisis?," Journal of Financial Services Research, Springer, vol. 41(1), pages 19-35, April.
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
- Wolfgang Drobetz & Andreas Schillhofer & Heinz Zimmermann, 2004. "Corporate Governance and Expected Stock Returns: Evidence from Germany," European Financial Management, European Financial Management Association, vol. 10(2), pages 267-293.
- Donald P. Morgan, 2002. "Rating Banks: Risk and Uncertainty in an Opaque Industry," American Economic Review, American Economic Association, vol. 92(4), pages 874-888, September.
- Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
- Bhagat, Sanjai & Bolton, Brian, 2008. "Corporate governance and firm performance," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 257-273, June.
- Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
- Peter Klein & Daniel Shapiro & Jeffrey Young, 2005. "Corporate Governance, Family Ownership and Firm Value: the Canadian evidence," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(6), pages 769-784, November.
- Brickley, James A & James, Christopher M, 1987. "The Takeover Market, Corporate Board Composition, and Ownership Structure: The Case of Banking," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 161-80, April.
- 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.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:45419. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.