Does Corporate Governance Score Affect Stock Price? Evidence from a Developing Country
DOI:
https://doi.org/10.18533/ijbsr.v13i02.1459Keywords:
corporate governance, stock price, CEO duality, independent directorsAbstract
Corporate governance has received significant attention in recent years, mainly due to the numerous corporate collapses and accounting fraud at the executive level of management. The benefits of an effective corporate governance structure are well documented, ranging from reduce cost of capital to improved transparency in ethics, morality and financial disclosure. Well- managed companies should therefore produce better financial results which ultimately should result in better returns for investors. This study investigates the effect of corporate governance on stock prices. The results showed that stock prices are affected by a company’s corporate governance structure which is in line with the literature that argues that better managed/governed companies are able to access finance at lower cost.
References
Abdullah, S. (2004). Board composition, CEO duality and performance among Malaysian listed companies. Corporate Governance: The International Journal of Business in Society, 4(4), 47-61.
Anderson, C., & Anthony, N. (1986). The new corporate directors. New York: John Wiley & sons, Inc.
Aram, J.D., & Cowen, S.S. (1983). Information for corporate directors: The role of the board in management process (No. 83146). Institute of Management Accountants.
Baysinger, B., & Hoskisson, R.E. (1990). The composition of boards of directors and strategic control: Effects on corporate strategy. Academy of Management Review, 15(1), 72-87.
Beatty, R.P., & Zajac, J.E. (1994). Managerial incentives, monitoring and risk bearing: A study of executive compensation, ownership and board structure in initial public offerings.
Administrative Science Quarterly, 39, 313-335.
Bebchuk, L., & Fried, J. (2004). Pay without performance. (Harvard University Press Cambridge, MA).
Bennis, W., & O’Toole, J. (2000). Don’t hire the wrong CEO. Harvard Business Review, 78(3), 170-176.
Boyd, B.K. (1994). Board control and CEO compensation. Strategic Management Journal, 15(5), 335-344.
Brick, I.E., Palmon, O., & Wald, J.K. (2006). CEO compensation, director compensation and firm performance: Evidence of cronyism? Journal of Corporate Finance, 12(3), 403-423.
Brickley, J.A., Coles, J.L., & Jarrell, G. (1997). Leadership structure: Separating the CEO and chairman of the board. Journal of Corporate Finance, 3(3), 189-220.
Braun, M., & Sharma, A. (2007). Should the CEO also be the chair of the board? An empirical examination of family-controlled public firms. Family Business Review, 20(2), 111-126.
Cadbury, A. (2002). Corporate governance and chairmanship: A personal view. Oxford University Press.
Cadbury Committee, (1992). The Financial Aspect of Corporate Governance. London: Gee.
Canella, A.A., & Shen, W. (2001). So close and yet so far: Promotion versus exit for CEO heirs apparent. Academy of Management Journal, 44(2), 252-270.
Chaudhry, G., & O’Sullivan, N. (2012). The governance role of audit committees: Reviewing a decade of evidence. British Academy of Management.
Chen,K.Y., and Zhou, J. (2007). Audit committee, board characteristics, and auditor switch decisions by Anderson’s clients. Contemporary Accounting Research, 24, 1085-1117.
Chen, Y.M., Moroney, R., & Houghton, K. (2005). Audit committee composition and the use of an industry specialist audit firm. Accounting and Finance, 45, 217-239.
Cohen, J., Krishnamoorthy, G., & Wright, A. (2004). The corporate governance mosaic and financial reporting quality. Journal of Accounting Literature, 23, 87-152.
Daily, C.M., Dalton, D.R., & Cannella, A.A (2003). Corporate governance: Decades of dialogue and data. Academy of Management Review, 28(3), 371-382.
Dalton, D.R., Daily, C.M., Certo, S.T., & Roengpitya, R. (2003). Meta-analyses of financial performance and equity: Fusion or confusion? Academy of Management Journal, 46(1), 13-26.
Dalton, D.R., Daily, C.M., Johnson, J.L., & Ellstrand, A.E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42(6), 674-686.
Dayton, K.N. (1984). Corporate governance- the other side of the coin. Harvard Business Review, 62(1), 34-37.
Dey, A. (2008). Corporate governance and agency conflicts. Journal of Accounting Research, 46(5), 1143-1181.
Dey, E., Engel, E., & Liu, X. (2009). Determinants and implications of board leadership structure. University of Chicago Booth School of Business Working Paper. 09-23.
Dobrzynski, J.H. (1991). One hat too many. Business Week, 18, 124.
Donaldson, L., & Davis, J.H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49-64.
Elsayed, K. (2007). Does CEO duality really affect corporate performance? Corporate Governance: An International Review, 1203-1214.
Fama, E.F. (1980). Agency problems and the theory of the firm. The Journal of Political Economy, 288-307.
Fama, E.F., & Jensen, M.C. (1983). Separation of ownership and control. Journal of Law and Economics, 26, 327-349.
Finkelstein, S., & D’Aveni, R.A. (1994). CEO duality as a double-edge sword. How boards of directors balance entrenchment avoidance and unity of command. Academy of Management Journal, 37(5), 1079-1108.
Finkelstein, S., & Hambrick, D. C. (1996). Strategic leadership: Top executives and their efforts on organizations. South-Western Publishing.
Gopinath, C., Siciliano, J.I., & Murray, R.L. (1994). Changing role of the board of directors: In Search of new strategic identity? The Mid-Atlantic Journal of Business, 30(2), 175-185.
Gumbel, A. (2006). Managerial power and executive pay. Oxford Journal of Legal Studies, 26(1),219-233.
Hillman, A.J., Cannella, A.A., & Paetzold, R.L. (2000). The resource dependency role of corporate directors: Strategic adaptation of board composition in response to environmental change, Journal of Management Studies, 37(2), 235-256.
Hermalin, B.E., & Weisbach, M.S. (2003). Boards of directors as an endogenously determined institution: A survey of economic literature. Economic Policy Review, 9(1), 7-26.
Huse, M. (2007). Boards, governance and value creation: The human side of corporate Governance. Cambridge University Press.
Jensen, M.C., & Meckling, W.H. (1976). Theory of the firm: Managerial behavior, agency cost and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Jensen, M.C., & Warner, J.B. (1988). The distribution of power among corporate managers, shareholders and directors. Journal of Financial Economics, 20, 3-24.
Johnson, J.L. Daily, C., & Ellstrand, A. (1996). Boards of directors: a review and research agenda. Journal of Management, 22, 209-438.
Johnson, E.I. (2005). The role model of the board: A preliminary study of the role of Icelandic boards. Corporate Governance: An International Review, 13(5), 710-150.
Kakabadse, A., Kakabadse, N.K., & Barrat, R. (2006). Chairman and chief executive officer (CEO: The scared and secret relationship. Journal of Management Development, 25(2), 134-150.
Krishnan, G., & Visvanathan, G. (2009). Do auditors price audit committee expertise? The case of accounting versus non-accounting financial experts. Journal of Accounting, Auditing & Finance, 24, 115-144.
Levy, L. (1981). Reforming board reform. Harvard Business Review, 59, 166-172.
Mallette, P., & Fowler, K.L. (1992). Effects of board composition and stock ownership on the adoption of “poison pills.” Academy of Management Journal, 35(5), 1010-1035.
Massen, P. (2002). Organizational strategies and governance structures in Dutch universities in governing higher education. National Perspective and Institutional Governance, 23-41. Springer Netherlands.
Miller, D., & Friesen, P. (1977). Strategy-making in context: Ten empirical archetypes. Journal of
Management Studies, 1(4), 253-280.
Millstein, I. (1992). The limits of corporate power: existing constraints on the exercise of corporate discretion. New York: MacMillan.
Raheja, C.G. (2005). Determinants of board size and composition: A theory of corporate boards. Journal of Financial and Quantitative Analysis, 40(02), 283-306.
Rechner, P.L., & Dalton, D.R. (1991). CEO duality and organizational performance: A Longitudinal analysis. Strategic Management Journal, 12(2), 155-160.
Rosenstein, S., & Wyaat, J.G. (1990). Outside directors, board independence and shareholder wealth. Journal of Financial Economics, 26(2), 175-191.
Rashid, A. (2013). CEO duality and agency cost: evidence from Bangladesh. Journal of Management and Governance, 17(4), 989-1008.
Rashid, A., Kamil, M., Othman, R., & Fong Se, K. (2012). IC disclosures in IPO prospectuses: Evidence from Malaysia, Journal of Intellectual Capital, 13(1), 57-80.
Rose, C. (2005). The composition of semi-two-tier corporate boards and firm performance, Corporate Governance: An International Review, 13(5), 691-701.
Pearce, J.A., & Zahra, S.A. (1991). The relative power of CEOs and boards of directors: Association with corporate performance. Strategic Management Journal, 12(2), 135-153.
Pfeffer, J., & Salancik, G.R. (1978). The external control of organizations: A resource dependency approach. NY: Harper and Row Publishers.
Samontarary, D.P. (2010). Impact of corporate governance on stock prices of the nifty 50 broad index listed companies. International Research Journal of Finance and Economics, ISSN 1450-2887 Issue 41.
Sawicki, J. (2009). Corporate governance and dividend policy in Southeast Asia per- and post-crisis. European Journal of Finance, 15(2), 211-230.
Shieifer, A., & Vishny, R.W. (1997). A survey of corporate governance. The Journal of Finance, 52(2), 737-783.
Shil, N.C. (2008). Accounting for good corporate governance. JOAAG, 3(1).
Solomon, L.D. (1993). On the frontier of capitalism: Implementation of humanomics by modern public held corporation: A critical assessment. Washington and Lee Law Review, 50(4), 1625-1671.
Stearns, L.B., & Mizruchi, M.S. (1993). Board composition and corporate financing: The impact of financial institution representation on borrowing. Academy of Management Journal, 36(3), 603-618.
Turley, S., & Zaman, M. (2004). The corporate governance effects of audit committees. Journal of Management and Governance, 8, 305-332.
Walsh, J.P., & Seward, J.K. (1990). On the efficiency of internal and external corporate control mechanism. Academy of Management Review, 15(3), 421-458.
Watts, R.L., & Zimmerman, J.L. (1986). Positive Accounting Theory. Englewoods Cliffs, NJ: Prentice Hall.
Wu, X. (2005). Corporate governance and corruption: Cross country analysis governance. An International Journal of Policy, Administration, and Institutions, 18(2), 151-170.
Zaha, S.A., & Pearce, J.A. (1989). Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15(2), 291-334.
Downloads
Published
Issue
Section
License
Copyright (c) 2023 Phillip Cordwell James
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
