Does Relative Strength in Corporate Governance Improve Corporate Performance? Empirical Evidence Using MCDA Approach

Guney, Y., Hernandez-Perdomo, E., and Rocco, C.M. (2019). Does relative strength in corporate governance improve corporate performance? Empirical evidence using MCDA approach, Journal of the Operational Research Society, DOI: 10.1080/01605682.2019.1621216

39 Pages Posted: 25 Jun 2019

See all articles by Yilmaz Guney

Yilmaz Guney

University of Hull

Elvis Alexander Hernandez Perdomo

University of Hull; Central University of Venezuela (UCV)

Claudio Rocco

Central University of Venezuela (UCV)

Date Written: June 20, 2019

Abstract

Academics and practitioners have developed different constructs to quantify corporate governance quality. Despite the limitations of the existing measures, they are still being commonly used. The literature finds that the relationship between performance and corporate governance quality can be positive, non-existing or even negative. To resolve this puzzle, we introduce a multi-criteria decision analysis (MCDA) approach to construct an alternative corporate governance quality synthesising companies’ practices and mechanisms through an exhaustive pair comparison procedures based on outranking relationships analysis. Our approach compares the aggregate quality with a well-known corporate governance index, ASSET4 ESG in Thomson Reuters Datastream, using data for the U.S. firms. Using this MCDA approach based on PROMETHEE methods and econometric analysis, we obtain consistently a negative and strong link between firm performance and corporate governance quality. The findings are of particular interest to both scholars and decision makers including providers of corporate governance indices and rating agencies.

Keywords: multiple criteria analysis, decision analysis, corporate governance, financial performance, outranking relationships

Suggested Citation

Guney, Yilmaz and Hernandez Perdomo, Elvis Alexander and Rocco, Claudio, Does Relative Strength in Corporate Governance Improve Corporate Performance? Empirical Evidence Using MCDA Approach (June 20, 2019). Guney, Y., Hernandez-Perdomo, E., and Rocco, C.M. (2019). Does relative strength in corporate governance improve corporate performance? Empirical evidence using MCDA approach, Journal of the Operational Research Society, DOI: 10.1080/01605682.2019.1621216. Available at SSRN: https://ssrn.com/abstract=3407244

Yilmaz Guney (Contact Author)

University of Hull ( email )

Hull, HU6 7RX
United Kingdom

HOME PAGE: http://https://www.hull.ac.uk/faculties/fblp/hubs.aspx

Elvis Alexander Hernandez Perdomo

University of Hull ( email )

Cottingham Road
Hull, Great Britain HU6 7RX
United Kingdom

Central University of Venezuela (UCV) ( email )

University City
Los Chaguaramos
Caracas, 1050
Venezuela

Claudio Rocco

Central University of Venezuela (UCV) ( email )

University City
Los Chaguaramos
Caracas, 1050
Venezuela

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