Corporate Governance Quality and Firm Value in Brazil

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Corporate Governance Quality and Firm Value in Brazil

Dr. Alexandre Di Miceli da Silveira, University of Sao Paulo, Sao Paulo, Brazil
Dr. Lucas Ayres B. de C. Barros, Mackenzie Presbiterian University, Sao Paulo, Brazil

Alexandre Di Miceli da Silveiraa
School of Economics, Management and Accounting of University of São Paulo (FEA/USP)

Lucas Ayres B. de C. Barrosb
Mackenzie Presbiterian University

July, 2006

a Professor of Finance and Accounting at School of Economics, Management and Accounting of University of São Paulo (FEA/USP). Tel: (+55) 11 5054-1888. e-mail: alexfea@usp.br (contact author). b Professor of Finance at Mackenzie Presbiterian University. Tel: (+55) 11 3871-2689. e-mail: lucasayres2002@gmail.com.

Corporate Governance Quality and Firm Value in Brazil

Abstract

This paper investigates the influence of corporate governance quality on market value of 154 Brazilian listed companies in 2002. In order to obtain a proxy for corporate governance quality, a broad governance index was built. The investigation was carried out through different econometric approaches in increasing order of complexity, including multiple regressions by Ordinary Least Squares (OLS), instrumental variables approach and systems of simultaneous equations. The results obtained in all econometric approaches show a positive and significant influence of corporate governance quality on firm’s market value. OLS results with market value variables Tobin’s Q and PBV multiple suggest that, ceteris paribus, a worst-to-best change in governance quality would result in a market capitalization increase of around 85% and 100%, respectively. The paper also finds evidence of corporate governance variable endogeneity and proposes different instruments for estimation by instrumental variables approach. Moreover, results by simultaneous equation approach indicate a relation of…...

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