The Impact of Governance Reform on Performance and Transparency

65 Pages Posted: 12 Sep 2007 Last revised: 24 Apr 2009

See all articles by Richard A. Price

Richard A. Price

University of Oklahoma

Francisco J. Román

George Mason University - Department of Accounting; George Mason University

Brian Rountree

Rice University - Jesse H. Jones Graduate School of Business

Date Written: April 6, 2009

Abstract

This study examines the influence of Mexico’s efforts to improve corporate governance on firm performance and transparency. We utilize compliance data from the Code of ‘Best’ Corporate Practices, disclosed annually by public firms in Mexico, as a measure of corporate governance strength. We document a significant increase in compliance over 2000-2004 indicating Mexican companies view non-compliance as costly. However, we find no association between the governance index and firm performance, nor is there a relation with transparency. Instead, we find firms with greater compliance resort to the more costly mechanism of making dividend payments (higher propensity to pay and greater yield) to reduce agency conflicts. We conclude these associations are the direct result of the institutional features of the Mexican business environment, which is characterized by concentrated ownership of insiders, interlocked boards of directors, a lack of insider trading enforcement, and generally poor protection of minority investors. Our results show that monitoring mechanisms alone are not enough to fundamentally change economic behavior.

Keywords: Corporate governance, corporate transparency, financial reporting, earnings management

JEL Classification: M41, M47, G34, G35, G32

Suggested Citation

Price, Richard A. and Román, Francisco J. and Rountree, Brian Robert, The Impact of Governance Reform on Performance and Transparency (April 6, 2009). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1014158

Richard A. Price

University of Oklahoma ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-5759 (Phone)

Francisco J. Román

George Mason University - Department of Accounting

Fairfax, VA
United States

George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-1849 (Phone)

Brian Robert Rountree (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
697
rank
34,537
Abstract Views
2,538
PlumX Metrics