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Corporate governance
About: Corporate governance is a research topic. Over the lifetime, 118591 publications have been published within this topic receiving 2793582 citations.
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TL;DR: Gov-score as discussed by the authors is a summary governance measure based on 51 firm-specific provisions representing both internal and external governance, and they show that a parsimonious index based on seven provisions underlying Gov-Score fully drives the relation between Gov-score and firm value.
Abstract: Gompers et al. [Gompers, P., Ishii, J., Metrick, A., 2003. Corporate governance and equity prices. Quarterly Journal of Economics 118, 107-155] created G-Index, a summary measure of corporate governance based on 24 firm-specific provisions, and showed that more democratic firms are more valuable. Bebchuk et al. [Bebchuk, L., Cohen, A., Ferrell, A., 2005. What matters in corporate governance? Working Paper, Harvard Law School] created an entrenchment index based on six provisions underlying G-Index, and found it to fully drive the Gompers et al. (2003) valuation results. Both G-Index and the entrenchment index are based on IRRC data that is comprised of anti-takeover measures, focusing on external governance [Cremers, K.J.M., Nair, V.B., 2005. Governance mechanisms and equity prices. Journal of Finance 60, 2859-2894]. We create Gov-Score, a summary governance measure based on 51 firm-specific provisions representing both internal and external governance, and we show that a parsimonious index based on seven provisions underlying Gov-Score fully drives the relation between Gov-Score and firm value. Our results support the Bebchuk et al. (2005) findings that only a small subset of provisions marketed by corporate governance data providers are related to firm valuation, and the Cremers and Nair (2005) evidence that both internal and external governance are linked to firm value. The 51 governance provisions we consider include five that are relevant to accounting and public policy: stock option expensing, and four that are audit-related. We find none of these five measures to be related to firm valuation. We document that only one of the seven governance provisions important for firm valuation was mandated by either the Sarbanes-Oxley Act of 2002 or the three major US stock exchanges. We provide researchers with an alternative measure of governance to G-Index with three distinct advantages: (1) broader in scope of governance, (2) covers more firms, and (3) more dynamic, reflecting recent changes in the corporate governance environment.
1,024 citations
TL;DR: The empirical research examining the association between typical measures of corporate governance and various accounting and economic outcomes has not produced a consistent set of results as mentioned in this paper, which is not consistent in our experience.
Abstract: The empirical research examining the association between typical measures of corporate governance and various accounting and economic outcomes has not produced a consistent set of results. We belie...
1,023 citations
TL;DR: In this article, the role of financial reporting transparency in reducing governance-related agency conflicts among managers, directors, and shareholders, as well as in reducing agency conflicts between shareholders and creditors, is reviewed.
Abstract: We review recent literature on the role of financial reporting transparency in reducing governance-related agency conflicts among managers, directors, and shareholders, as well as in reducing agency conflicts between shareholders and creditors, and offer researchers some suggested avenues for future research. Key themes include the endogenous nature of debt contracts and governance mechanisms with respect to information asymmetry between contracting parties, the heterogeneous nature of the informational demands of contracting parties, and the heterogeneous nature of the resulting governance and debt contracts. We also emphasize the role of a commitment to financial reporting transparency in facilitating informal multi-period contracts among managers, directors, shareholders, and creditors.
1,015 citations
TL;DR: This paper found that female board representation is positively related to accounting returns and that this relationship is more positive in countries with stronger shareholder protections, perhaps because shareholders motivate boards to use the different knowledge, experience, and values that each member brings.
Abstract: Despite a large body of literature examining the relationship between women on boards and firm financial performance, the evidence is mixed. To reconcile the conflicting results, we statistically combine the results from 140 studies and examine whether these results vary by firms' legal/regulatory and socio-cultural contexts. We find that female board representation is positively related to accounting returns and that this relationship is more positive in countries with stronger shareholder protections--perhaps because shareholder protections motivate boards to use the different knowledge, experience, and values that each member brings. We also find that, although the relationship between female board representation and market performance is near zero the relationship is positive in countries with greater gender parity (and negative in countries with low gender parity)--perhaps because societal gender differences in human capital may influence investors' evaluations of the future earning potential of firms that have more female directors. Lastly, we find that female board representation is positively related to boards' two primary responsibilities: monitoring and strategy involvement. For both firm financial performance and board activities, we find mean effect sizes comparable to those found in meta-analyses of other aspects of board composition. We discuss the theoretical and practical implications of our findings
1,013 citations
TL;DR: In this article, the authors examined whether institutional investors affect corporate governance by analyzing portfolio holdings of institutions in companies from 23 countries during the period 2003-2008 and found that firm-level governance is positively associated with international institutional investment.
1,012 citations