An Integrated Framework of Corporate Governance and Firm Valuation

Stefan Beiner, Wolfgang Drobetz, Markus Schmid and Heinz Zimmermann

European Financial Management, 2006, vol. 12, issue 2, 249-283

Abstract: 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.

Date: 2006
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