Variation in Corporate Governance and Firm Valuation – An International Study

39 Pages Posted: 7 Dec 2016

See all articles by Steve Z. Fan

Steve Z. Fan

University of Wisconsin - Whitewater

Linda Yu

University of Wisconsin - Whitewater

Date Written: December 2016

Abstract

In this paper, we investigate the types of firms that are likely to deviate from common practice in corporate governance of their home countries and examine how the deviation is correlated with firm value. Our results show that firms with higher institutional holdings, lower insider holdings, and higher sales growth are more likely to deviate from common practice in civil law countries, whereas, in common law countries, especially in the USA, firms with lower institutional holdings, higher insider holdings, and lower sales growth are likely to deviate from common practice. We document a strong positive correlation between governance deviation and firm value in civil law countries. This relationship is robust to different testing and sample selection methods. The results, however, are mixed for US firms and not significant in other common law countries. Using the deviation from common practice as a proxy of firm‐level impact on corporate governance, our results provide evidence that firm‐level effect matters in governance quality and the effect varies across countries.

Suggested Citation

Fan, Steve Z. and Yu, Linda, Variation in Corporate Governance and Firm Valuation – An International Study (December 2016). International Review of Finance, Vol. 16, Issue 4, pp. 525-563, 2016, Available at SSRN: https://ssrn.com/abstract=2881022 or http://dx.doi.org/10.1111/irfi.12096

Steve Z. Fan (Contact Author)

University of Wisconsin - Whitewater ( email )

800 W. Main Street
Whitewater, WI 53190
United States

Linda Yu

University of Wisconsin - Whitewater ( email )

800 W. Main
Whitewater, WI 53190
United States

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