Corporate Governance in Publicly Traded Small Firms: A Study of Canadian Venture Exchange Companies
Posted: 15 Nov 2010 Last revised: 21 Oct 2012
Date Written: February 1, 2012
Most evidence on the determinants and effects of corporate governance practices is based on large firms. In this paper we explore these issues in the context of small publicly traded Canadian companies. We exploit the fact that such firms were not subject to corporate governance guidelines prior to 2005, and thus analyze the determinants of voluntary governance practice choices as well as the effects of those practices on firm performance. Using a unique dataset, we construct a corporate governance index for each firm. We measure performance by two variables: quality of accounting earnings and financial performance. The results indicate that corporate governance does matter for smaller traded Canadian firms. We find both accounting and financial performance being positively related to corporate governance, although the underlying mechanisms may differ somewhat. Given this result, it would be natural to expect all firms to choose higher levels of governance. However, our results also suggest small firms face resource constraints that limit their choices. We conclude that good governance is an important driver of small firm performance that cannot be neglected by owners and managers of these firms.
Keywords: Corporate governance, Earnings quality, Venture Exchange, Firm performance
JEL Classification: G12, G14
Suggested Citation: Suggested Citation