Corporate Governance and Alternative Performance Measures: Evidence from Australian Firms
19 Pages Posted: 21 Sep 2007
Despite the general acceptance of the role of corporate governance, empirical research has remained inconclusive regarding the extent to which individual monitoring mechanisms enhance firm performance and shareholder value. In particular, most previous studies have not convincingly overcome two critical difficulties: the potential endogeneity associated with monitoring mechanisms and the lack of an accurate and stable measure of performance. We use a sample of the top 150 Australian firms by market capitalisation from 1994 to 2003, to examine the relationship between firm performance (measured by Tobin's Q and Stern Stewart's EVA) and corporate governance. We control for the endogeneity of our governance measures, by using a fixed-effects panel regression. However, similar to the international evidence, we do not find a significant relationship between either of the performance measures and corporate governance. The results suggest that similar to Tobin's Q, EVA is too noisy as a performance measure to register any impact of governance mechanisms.
Keywords: Corporate governance, Firm value, EVA, Australia
JEL Classification: G32
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