Direct and indirect impacts of governance on the value of Brazilian corporations

Valdir De Jesus Lameira, Walter Lee Ness Jr., Jean E. Harris, Osvaldo Luiz Gonçalves Quelhas and Roberto Guimarães Pereira

International Journal of Economics and Business Research, 2012, vol. 4, issue 6, 639-658

Abstract: This study estimated the quality of governance practices employed by a sample of publicly traded companies in Brazil between 2002 and 2006. It also explored the way quality of governance is related to three variables: risk, performance, and value. The Hausman test showed endogeneity between governance and value. Afterwards, the structural equations method was applied to construct various models involving the relationships among: a) governance; b) performance as measured by ROE (return on assets) and by ETS (ebit-to-sales); c) risk as measured by WACC (weighted average cost of capital); d) value as measured by MTS (market-to-book sales); e) by MTBV (market-to-book value). Statistically significant results were observed among high levels of governance, low risk, strong performance and high value. This suggests that governance affects the value of companies directly as well as affecting the value of companies indirectly through the mediating variables of risk and of performance.

Keywords: corporate governance; risk; firm performance; firm value; endogeneity; structural equation modelling; Brazil. (search for similar items in EconPapers)
Date: 2012
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