Corporate Governance, Risk Aversion and Firm Value

Abstract

This study extends the current state of research on corporate governance and firm value determinants by introducing culture as a proxy for risk aversion. We focus on individuals’ risk aversion and connect it to Hofstede’s cultural dimensions of uncertainty avoidance. In a cross-country empirical analysis with 47 countries, we find that uncertainty avoidance is negatively associated with valuation of firms. Our findings suggest that cross-country variation in risk aversion as well as in corporate governance impact firm valuation. The results are robust to controlling for other determinants of firm value and using different datasets.

Keywords: company valuation, risk aversion, uncertainty avoidance, corporate governance

JEL Classification: G02, G32, Z10