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An Integrated Framework of Corporate Governance and Firm Valuation
Author(s) -
Beiner Stefan,
Drobetz Wolfgang,
Schmid Markus M.,
Zimmermann Heinz
Publication year - 2006
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1354-7798.2006.00318.x
Subject(s) - corporate governance , endogeneity , valuation (finance) , leverage (statistics) , accounting , business , economics , econometrics , finance , statistics , mathematics
Recent empirical research shows evidence of a positive relationship between the quality of firm‐specific corporate governance and firm valuation. Instead of looking at one single corporate governance mechanism in isolation, we construct a broad corporate governance index and apply five additional variables related to ownership structure, board characteristics, and leverage to provide a comprehensive description of firm‐level corporate governance for a representative sample of Swiss firms. To control for potential endogeneity of these six governance mechanisms, we develop a system of simultaneous equations and apply three‐stage least squares (3SLS). Our results support the widespread hypothesis of a positive relationship between corporate governance and firm valuation.