Corporate Governance and Firm Value: International Evidence

51 Pages Posted: 15 Oct 2010 Last revised: 29 May 2013

Manuel Ammann

University of St. Gallen - School of Finance

David Oesch

University of Zurich

Markus M. Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

Date Written: November 3, 2010

Abstract

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.

Keywords: Corporate Governance, Firm Valuation, Minimum Standards, Principal Component Analysis, Corporate Social Responsibility

JEL Classification: G32, G34, G38

Suggested Citation

Ammann, Manuel and Oesch, David and Schmid, Markus M., Corporate Governance and Firm Value: International Evidence (November 3, 2010). Available at SSRN: https://ssrn.com/abstract=1692222 or http://dx.doi.org/10.2139/ssrn.1692222

Manuel Ammann

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

David Oesch

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Markus M. Schmid (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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