Do Stock Prices Reflect the Corporate Governance Quality of Japanese Firms?

35 Pages Posted: 6 Jul 2011

See all articles by Hiroyuki Aman

Hiroyuki Aman

Nagasaki University - Department of Economics

Pascal Nguyen

Neoma Business School; University of Technology Sydney (UTS); Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: August 21, 2009

Abstract

We construct a governance index based on several attributes known to be associated with good corporate governance. After checking that the index is positively associated with standard indicators of firm performance, we use it to evaluate the returns on governance-sorted portfolios. Our main finding is that poorly governed firms significantly outperform better-governed firms. However, this result derives from the greater risk exposure of poorly governed firms. After adjusting for size and book-to-market, excess returns become insignificant across all portfolios. We verify that neither the sample period nor the behavior of specific industries is responsible for this outcome. Consistent with market efficiency, stock prices appear to fairly reflect the higher (lower) risk associated with poor (good) corporate governance.

Keywords: corporate governance, performance, stock returns, risk exposure, market efficiency

JEL Classification: G11, G12, G14, G34

Suggested Citation

Aman, Hiroyuki and Nguyen, Pascal, Do Stock Prices Reflect the Corporate Governance Quality of Japanese Firms? (August 21, 2009). Available at SSRN: https://ssrn.com/abstract=1458925 or http://dx.doi.org/10.2139/ssrn.1458925

Hiroyuki Aman

Nagasaki University - Department of Economics ( email )

4-2-1 Katafuchi
Nagasaki 850-8506
Japan
+81 95 820 6409 (Phone)

Pascal Nguyen (Contact Author)

Neoma Business School ( email )

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Mont Saint Aignan Cedex, 76825
France
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University of Technology Sydney (UTS) ( email )

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HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=4415

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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