Do stock prices reflect the corporate governance quality of Japanese firms?

We construct a governance index based on several attributes known to be associated with good corporate governance. After checking that the index is positively associated with standard indicators of firm performance, we use it to evaluate the returns on governance-sorted portfolios. Our main finding...

Full description

Saved in:
Bibliographic Details
Published in:Journal of the Japanese and international economies 2008-12, Vol.22 (4), p.647-662
Main Authors: Aman, Hiroyuki, Nguyen, Pascal
Format: Article
Language:English
Subjects:
Business practices
Corporate governance
Corporate governance Performance Stock returns Risk exposure Market efficiency
Economic theory
Japan
Market efficiency
Quality standards
Risk
Risk exposure
Securities analysis
Stock prices
Stock returns
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We construct a governance index based on several attributes known to be associated with good corporate governance. After checking that the index is positively associated with standard indicators of firm performance, we use it to evaluate the returns on governance-sorted portfolios. Our main finding is that poorly governed firms significantly outperform better-governed firms. However, this result derives from the greater risk exposure of poorly governed firms. After adjusting for size and book-to-market, excess returns become insignificant across all portfolios. We verify that neither the sample period nor the behavior of specific industries is responsible for this outcome. Consistent with market efficiency, stock prices appear to fairly reflect the higher (lower) risk associated with poor (good) corporate governance. J. Japanese Int. Economies 22 (4) (2008) 647–662.
ISSN:0889-1583
1095-8681
DOI:10.1016/j.jjie.2008.05.001