Corporate Governance and Firm Performance: A Comparative Analysis on Auditing Matters
42 Pages Posted: 11 Mar 2005
Date Written: june 2004
The recent financial crises are the basis of a new debate about comparison and convergence of different corporate governance systems and they have underlined poor efficiency of rule structures to achieve a good relationship between different stakeholder's rights.
Many studies of corporate governance emphasize the manager-stakeholders relationship as explained by agency theory. In this article, we analyse the role of audit as an incentive device to reduce contractual or transaction costs related to asymmetric information.
Considering as benchmark the recent US Sarbanes Oxley Act of July 2002, we describe a set of audit principles in a comparison of common law and civil law company laws. Using multiple correspondence analysis on six countries and twenty-seven dummy variables on auditing rules, we have defined the main variables that describe auditing index.
Subsequently, we have tested if a suitable rule structure can improve the capability of financial market to estimate the fair value of firms. In particular, we have analysed if direct and indirect monitoring rules on managers could affect the market value of listed firms positively.
Keywords: corporate governance, company law, market structure, firm performance, auditing
JEL Classification: G34, K22, L22, L25, M42
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