The Value of Governance

Corporate directors sometimes question the usefulness of “good governance,” asking whether implementing measures to improve corporate governance makes a difference. As this article shows, the preponderance of academic research suggests that the quality of governance does indeed matter. A common theme is a statistically significant and positive relationship between corporate governance measures and firm value. For example, Board composition, ownership structure, and the presence of institutional shareholders have all been found to relate to valuation outcomes. The strong implication is that the increasing emphasis by institutional investors such as pension funds on the quality of corporate governance in their investment practices is not misplaced.