Firm Value and the Evolution of Corporate Governance Standards in Spain
34 Pages Posted: 6 Oct 2009
Date Written: October 6, 2009
The first generation of studies in corporate governance point out to the causality between governance and performance, but recent empirical research has raised the concern whether this “causality” is driven by observable and unobservable firm-specific characteristics. In this paper, I use panel data fixed effects to control for unobservable firm heterogeneity and show that the causality between governance and firm value is not spurious in the case of publicly-traded Spanish firms. I find that the impact of the quality of governance on firm value is sustained over time and that causality seems to run from governance to firm value. These results are robust to numerous controls for observable firm characteristics. I also examine what are the determinants of governance in the case of Spain. The results show that firm size and future growth opportunities have a positive impact on firms’ quality of governance. As a proxy for the quality of governance, I construct a governance index (GOV-I) for a sample of 113 Spanish public companies for the period between 2003 and 2007.
Keywords: corporate governance, firm value, governance determinants, panel data
JEL Classification: G34
Suggested Citation: Suggested Citation