Is Good Governance Priced? An Examination of Listed Firms from OECD Equity Markets

76 Pages Posted: 16 Jan 2018 Last revised: 16 Feb 2019

See all articles by Bruce Allen Hearn

Bruce Allen Hearn

University of Southampton

Kate Phylaktis

City University London - Sir John Cass Business School

Date Written: February 12, 2018

Abstract

A new governance index is constructed, which forms the basis of a new governance valuation factor, defined as the product of the firm governance index and the country institutional quality. Using monthly returns of 4,714 blue chip firms from 35 OECD equity markets for 17 years, our tests of variants of the augmented-CAPM, show that a two factor CAPM augmented with a factor mimicking portfolio based on our new governance metric yields the highest explanatory power in multi-country samples. We argue that this is representative of the revealed preferences of insider controlling groups within firms towards expropriating minority outsiders

Keywords: Firm Governance, Legal Origin, Asset pricing, International Financial Markets

JEL Classification: G3, G11, G12, G15

Suggested Citation

Hearn, Bruce Allen and Phylaktis, Kate, Is Good Governance Priced? An Examination of Listed Firms from OECD Equity Markets (February 12, 2018). Asian Finance Association (AsianFA) 2018 Conference. Available at SSRN: https://ssrn.com/abstract=3103120 or http://dx.doi.org/10.2139/ssrn.3103120

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Kate Phylaktis

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 70408735 (Phone)
+44 20 70408881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/k.phylaktis/

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