Corporate Governance and Firm Value: International Evidence
University of St. Gallen - School of Finance
University of Zurich
Markus M. Schmid
University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance
November 3, 2010
In this paper, we investigate the relation between firm-level corporate governance and firm value based on a large and previously unused dataset from Governance Metrics International (GMI) comprising 6,663 firm-year observations from 22 developed countries over the period from 2003 to 2007. Based on a set of 64 individual governance attributes we construct two alternative additive corporate governance indices with equal weights attributed to the governance attributes and one index derived from a principal component analysis. For all three indices we find a strong and positive relation between firm-level corporate governance and firm valuation. In addition, we investigate the value relevance of governance attributes that document the companies’ social behavior. Regardless of whether these attributes are considered individually or aggregated into indices, and even when “standard” corporate governance attributes are controlled for, they exhibit a positive and significant effect on firm value. Our findings are robust to alternative calculation procedures for the corporate governance indices and to alternative estimation techniques.
Number of Pages in PDF File: 51
Keywords: Corporate Governance, Firm Valuation, Minimum Standards, Principal Component Analysis, Corporate Social Responsibility
JEL Classification: G32, G34, G38
Date posted: October 15, 2010 ; Last revised: May 29, 2013
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