Corporate Governance, Norms and Practices

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Corporate Governance, Norms and Practices

• Vidhi Chhaochharia
• University of Miami
• Luc Laeven
• International Monetary Fund, CEPR and ECGI
• November 2007

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Background

• We evaluate the impact of firm level corporate
  governance provisions on the valuation of firms
  in a large cross section of countries.
• Differentiate between governance attributes that
  are adopted at the firm level and minimally
  accepted governance provisions that are satisfied
  by all firms in a country.
• We try and assess the degree to which firms go
  beyond corporate norms accepted by all firms
  and its affect on firm valuation.

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Contribution

• The relation between corporate governance
  and firm value
• Yermack (1996),
• Gompers, Ishii and Metrick (2003)
• Bebchuk, Cohen and Farrel (2004)
• Cremer and Nair (2005)
• The relation between corporate governance and
  firm value in an international context
• La Porta et al (2002)
• Klapper and Love (2004)
• Durnev and Kim (2005)
• Bruno and Claessens (2007)
• Aggarwal et al (2007)

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Data

• ISS collects firm level governance
  characteristics for a sample of 30 countries.
• Sample is a panel that includes data over 2300
  firms for the period 2003-2005 with 6134 firm
  year observations.
• CG Index is an equally weighted sum of these 17
  sub indicators.
• CG Country Index equally weighted sum of the
  attributes that are satisfied by all firms in a
  given country.
• Adjusted CG Index is the difference between firm
  level CG Index and country level CG Country Index.

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Firm Level Governance Scores by Country
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Governance Laws and Practices
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Main Results
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Robustness and Extensions

• Individual components of the corporate governance
  index
• Sample Selection
• Board Size

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Endogeneity

• GMM difference estimations of the relationship
  between corporate governance and firm valuation

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Corporate Governance and External Financing
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Reverse Causality- Industry Specific Shocks
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Conclusion

• Distinguish between firm-level and country-level
  governance.
• Despite the costs associated with improving
  corporate governance at the firm level, many
  firms choose to adopt governance provisions
  beyond what can be considered the norm in the
  country, and such improvements in corporate
  governance are reflected in higher market
  valuations