In this paper I outline the relationship between Corporate Governance (CG) and the valuation of a firm. Working through the huge body of empirical research I want to give a clear picture of the mechanisms and their relative importance in influencing the valuation. At first I clearly define what I am speaking about: What is Corporate Governance? What do I mean when I speak about “Corporate Valuation”? Once the terms are clear the main question is: Why are these two things connected? What are the theoretical arguments? To evaluate the empirical findings I shortly describe beforehand the statistical problems and pitfalls that arise within this research. With this stable fundament I describe, comprehend and evaluate the descriptive research that has been done until today. Throughout this part I also pay attention to the used methodology. The aim is to give the reader a comprehensive and clear answer to the question how does Corporate Governance influence the Corporate Valuation.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Definition of “Corporate Governance” and “Corporate Valuation”
- Statistical Problems
- Corporate Governance and Corporate Valuation
- Internal control mechanisms
- Board composition and size
- Insider ownership
- Equity ownership structure
- External control mechanism
- Market for corporate control
- Legal and Regulatory System
- CG-Index
- Internal control mechanisms
- Concluding remarks
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper explores the relationship between Corporate Governance (CG) and firm valuation, analyzing the mechanisms and their significance in influencing valuation. It clarifies the definitions of CG and Corporate Valuation and examines the theoretical arguments for their connection. The paper addresses the challenges of statistical analysis within this research and evaluates descriptive studies conducted on the topic.
- Definition of Corporate Governance and its role in mitigating information asymmetry between management and shareholders.
- The relationship between Corporate Governance and firm valuation, particularly as measured by Tobin's Q.
- Challenges of endogeneity in statistical analysis of CG's impact on valuation.
- Internal and external control mechanisms influencing Corporate Governance, including board composition, insider ownership, and market for corporate control.
- The use of CG indices to assess the overall influence of CG on valuation.
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter sets the stage for the paper by outlining the relationship between Corporate Governance (CG) and firm valuation. It emphasizes the importance of clearly defining key terms like Corporate Governance and Corporate Valuation before delving into the theoretical arguments for their connection.
- Definition of “Corporate Governance” and “Corporate Valuation”: This chapter defines Corporate Governance as a mechanism for aligning the interests of managers with those of shareholders, especially in the context of information asymmetry. It explains how Corporate Valuation is measured using Tobin's Q, which reflects the market value of shares and debt relative to the book value of assets. This chapter also discusses the concept of agency costs and how CG mechanisms aim to reduce information asymmetry, leading to higher valuation.
- Statistical Problems: This chapter highlights the challenge of endogeneity in research on CG and valuation, where variables influencing each other create statistical complications. It explains how endogeneity can arise from reverse causality and the interaction between regressors and error terms. The chapter discusses various approaches to address endogeneity, including instrumental variables, system of equations, and exogenous events.
- Corporate Governance and Corporate Valuation: This chapter delves into the mechanisms of Corporate Governance, categorizing them into internal and external control mechanisms. The focus is on internal control mechanisms, which are within a company's own control, such as board composition, insider ownership, and equity ownership structure. This section reviews research on the influence of these mechanisms on firm value, especially in the context of US and highly developed countries.
Schlüsselwörter (Keywords)
Key terms and concepts explored in this paper include: Corporate Governance, Corporate Valuation, Tobin's Q, information asymmetry, agency costs, internal and external control mechanisms, board composition, insider ownership, equity ownership structure, market for corporate control, endogeneity, statistical analysis, and CG indices.
- Quote paper
- Dennis Eggert (Author), 2007, Corporate Governance und Unternehmenswert, Munich, GRIN Verlag, https://www.grin.com/document/76531
