Do Productivity and Governance Matter? Their Impact in Stock Returns in European Industrial Companies

32 Pages Posted: 9 Jan 2011 Last revised: 24 Mar 2011

See all articles by Carlo Bellavite Pellegrini

Carlo Bellavite Pellegrini

Catholic University of Milan

Davide Romelli

University of Cergy-Pontoise - THEMA; ESSEC Business School

Date Written: January 6, 2011

Abstract

We take into consideration an innovative database of observations, focusing its attention on European data of different countries since the beginning of the Euro area. Our study introduces new control variables to the state variables used by Fama and French. This research considers the impact of specific control variables: the Productivity Index and the Corporate Governance Index on the total annual investment return of 1,058 the listed European industrial companies from January 1st 1996 to December 31st 2006. Both indices have a positive and statistically significant impact on stock returns. Dividing our sample into five different portfolios, both according to market capitalization and equal number of companies, we have clear evidence that lower market capitalization companies receive more benefits from a better level of productivity and governance. While higher capitalization companies have got stronger tools, like market power or political relevance in order to influence their performances and, consequently, their stock returns.

Keywords: stock returns, corporate governance, productivity

JEL Classification: G10, G34, J24

Suggested Citation

Bellavite Pellegrini, Carlo and Romelli, Davide, Do Productivity and Governance Matter? Their Impact in Stock Returns in European Industrial Companies (January 6, 2011). Available at SSRN: https://ssrn.com/abstract=1735949 or http://dx.doi.org/10.2139/ssrn.1735949

Carlo Bellavite Pellegrini (Contact Author)

Catholic University of Milan ( email )

Largo Gemelli 1
Milan, MI Milano 20123
Italy

Davide Romelli

University of Cergy-Pontoise - THEMA ( email )

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011
France

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

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