When Does Corporate Governance Matter? Evidence From Across the Corporate Lifecycle
Managerial Finance, Vol. 41, Issue 7, pp. 673-691
17 Pages Posted: 13 Apr 2020
Date Written: March 17, 2020
Purpose – We explore the relationship between corporate governance and firm value at different stages of the corporate life-cycle.
Design/methodology/approach – We use two measures, commonly employed in the literature, to differentiate between “immature” and “mature” firms, and estimate separate governance-value regressions for each set of firms.
Findings – Our findings suggest that governance only matters in emerging markets when firms are mature. These findings suggest that it is the monitoring role of governance which is valued in emerging markets. Firms which govern against the agency costs of free cash flow, which tend to manifest when firms are “mature”, are valued highly. In contrast, our analysis suggests that the strategic and resource functions of governance are not valued in emerging markets.
Research limitations/implications – We are restricted to the use of cross-sectional corporate governance data. Consequently, our findings are likely biased because of our inability to control for unobserved heterogeneity.
Originality/value – Our findings suggest that corporate governance is not valued equally at all stages of the corporate life-cycle. Recent evidence finds that for emerging market firms, corporate governance quality is greatest when firms are “mature”. Our findings suggest that the decision by mature firms to invest disproportionately more in governance when they are “mature” is justified, since this is then when governance is valued the most.
Keywords: corporate governance, corporate life-cycle, firm value, emerging markets
JEL Classification: G32
Suggested Citation: Suggested Citation