Impact of Corporate Governance on Value Relevance: A Comparative Analysis using West African Stock Exchanges

Abstract

This study investigates the impact of corporate governance on the quality of value relevance in the resolution of agency problems and investors’ confidence issues. We use empirical theories to test which econometrical model corporate governance mechanisms have the greatest positive impact on value relevance quality. Using 528 annual reports from Ghana and Nigeria stock exchange website databases, we choose three econometrical models to test our hypothesis and determine the best one. The first model investigates the direct impact of corporate governance on value relevance (Model 1); the second model investigates the effects of corporate governance under IFRS disclosure requirements compliance on value relevance (Model 2); and the final model investigates the impact of corporate governance associated with IFRS disclosure requirements compliance level on value relevance (Model 3). First, we discovered a positive effect of corporate governance across the three models. Model 3 is the best model, however, because corporate governance mechanisms are more effective and efficient at increasing value relevance when they are linked to IFRS compliance level. In model 3, we also find evidence that earnings are more positively impacted than book value. Furthermore, variables such as independence, expertise, and firm size all play a significant role in improving the quality of the value relevance determinants.