Corporate governance systems and firm value: empirical evidence from Japan's natural experiment

Abstract

Purpose -This paper aims to present evidence that the adoption by Japanese firms of a shareholder-oriented, more transparent, system of corporate governance creates greater corporate value in comparison to the traditional system of statutory auditors.Design/methodology/approach -This study uses panel data of Tokyo Stock Exchange listed companies to explore the potential convergence of corporate governance systems by examining the value differences between Japanese firms selecting one of two legal systems. A random-effects panel regression is used to analyze the data. The dependent variable of the study is Tobin's q.Findings -This paper finds a significant increase in firm valuation, as measured by Tobin's q, for companies that adopted the alternative of the Anglo-American type committee system, even though comparative financial data show little difference in performance after adoption. This finding is attributed to signal sending, as companies that adopted this system signal a choice toward transparency via monitoring by outsiders, suggesting a reduction of asymmetric agency costs. The paper finds that the committee corporate governance system produces higher corporate value than the traditional auditor governance. The study also finds evidence that it is the signal provided by adoption of the credible system, not the financial performance variables, that accounts for this difference. Social implications -The data support the central idea that corporate governance laws have consequences and encourages additional study of the effects of corporate signaling and the consequences of increased shareholder orientation of agents.Originality/value -This paper takes advantage of the unique opportunity afforded by Japan's introduction of a dual system of corporate governance in 2003, when companies were offered a choice to adopt a new system of outside directors, which is a shareholder-oriented committee system. It establishes that firm value can be created by a signal that corporate governance provides.

Corporate Governance: An Overview. From Creation of Value for Shareholders by the Board to the Duality Role of Its Chairperson

“…According to Eberhart (2012), the choice of a shareholder-driven governance system can improve corporate value compared to the traditional system of statutory auditors in Japan. The results show that companies adopting such a governance system send clear signals resulting from transparency and oversight of directors.…”

Analysis of The Impact of Corporate Governance On Profitability and Firm Value During The Covid-19 Pandemic

“…Corporate governance represents an internal mechanism within a company that encompasses management and ownership structures, influencing the level of profitability and firm value (Trinh et al, 2015;Eberhart, 2012;Debby et al, 2014;Mishra and Mohanty, 2014;Candradewi and Sedana, 2016;Islami, 2018). This study focuses on three corporate governance variables: Independent Commissioner, Managerial Ownership, and Audit Committee, as factors that can influence profitability and firm value.…”

Corporate governance determinants of firm performance: empirical evidence from banking, finance and insurance companies in Sri Lanka

“…Despite the abundant academic research on corporate governance and firm performance where much attention is paid to the developed countries. (John et al, 2008;Mizuno, 2010;Eberhart, 2012) It is still in infancy in the context of developing countries like Sri Lanka. Additionally, these studies have used the agency theory to explain their empirical evidence (Eberhart, 2012).…”

“…(John et al, 2008;Mizuno, 2010;Eberhart, 2012) It is still in infancy in the context of developing countries like Sri Lanka. Additionally, these studies have used the agency theory to explain their empirical evidence (Eberhart, 2012). Corporate governance has been developed paying greater attention to the agency theory and it is based on the ground of shareholder value maximization (Li et al, 2013).…”

“…The first study to empirically test the relationship between corporate governance and firm performance based on 56 listed firms which are registered in CSE. Also study contribute to the literature about the connection between corporate governance and firm performance on Sri Lankan point of view because lots of studies have been made based on developed country context (Mizuno, 2010;Eberhart, 2012).…”