Corporate Governance and Firm Value: Evidence from South African (SA) Listed Firms

Abstract

This paper investigates the relationship between a broad corporate governance (CG) index and firm value (Tobin’s Q) using a sample of 169 South African (SA) listed firms between 2002 and 2006. Consistent with the results of prior studies, we find a statistically significant and positive association between good CG practices and firm value. In a series of sensitivity analyses, we find that our results are robust to endogeneity and/or the existence of alternative CG mechanisms, different firm value proxies, alternative CG weighting scheme and firm-level fixed effects. Distinct from past studies, we further examine the link between complying with SA context specific stakeholder CG provisions and firm value. In line with political cost and resource dependence theories, our results reveal a statistically significant and positive nexus between compliance with stakeholder CG provisions and firm value.

Keywords: corporate governance, firm value, affirmative action and stakeholder, provisions, South Africa (SA), King II

JEL Classification: G12, G34, G38