The Corporate Governance and Performance Relation: A Small Firm Perspective

34 Pages Posted: 28 Aug 2012

See all articles by David Tan

David Tan

School of Finance, Actuarial Studies, and Applied Statistics, Australian National University

Lauren Wade

affiliation not provided to SSRN

Kathleen D. Walsh

University of Technology Sydney (UTS)

Date Written: August 26, 2012

Abstract

Compliance with corporate governance best practice is costly for all firms but can be prohibitively expensive for small firms, squeezing margins and depleting funds for reinvestment (Linck, Netter & Yang, 2008). In addition, small firms are not afforded the external governance mechanism of analyst coverage. Since most of the existing analysis of the relation between governance and performance has been conducted on large-cap firms this additional layer of external monitoring may serve as an omitted variable in the governance-performance relation. We therefore analyse a sample of small firms that are more dependent on their internal corporate governance practices and assess the governance performance relation. We apply dynamic panel generalised method of moments (GMM) models to account for the presence of endogeneity and find no evidence of a relation between a firm’s corporate governance and its performance.

Keywords: Corporate Governance, Performance, Analyst Coverage

JEL Classification: G30

Suggested Citation

Tan, David and Wade, Lauren and Walsh, Kathleen D., The Corporate Governance and Performance Relation: A Small Firm Perspective (August 26, 2012). 25th Australasian Finance and Banking Conference 2012, Available at SSRN: https://ssrn.com/abstract=2136730 or http://dx.doi.org/10.2139/ssrn.2136730

David Tan

School of Finance, Actuarial Studies, and Applied Statistics, Australian National University ( email )

Canberra, Australian Capital Territory 0200
Australia

HOME PAGE: http://cbe.anu.edu.au/staff/info.asp?Surname=Tan&Firstname=David

Lauren Wade

affiliation not provided to SSRN

Kathleen D. Walsh (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

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