The Corporate Governance Program
Corporate governance and economic performance
The basic question in this project is whether a firm's corporate governance system (such as its ownership structure and
board characteristics) matters for its economic performance.
The findings from this research are documented in five papers:
The first and the fifth paper start by describing existing theory and international empirical evidence on the
governance-performance interaction. Using a wide set of alternative regression models, econometric techniques, and
performance measures, we explore to what extent our sample firms' corporate governance characteristics are associated
with the economic value created. The second paper is a short discussion of a strategy of active governance as opposed to
active trading for mutual funds. The third paper analyzes how the ownership structure is reflected in price differences
between share classes at the OSE. The fourth paper is a relatively long interview, and the fifth paper is a rewritten
version of a paper which originates from the 2001 research report.
- The relationship between corporate governance and
economic performance in Norwegian listed firms. Research report no. 11, Norwegian School of Management BI, November
2001, 230 pages.
- Spiller aktivt eierskap noen rolle for fondsavkastningen? Investor
1, 2002, 14
- Price differences between equity classes. Corporate control, foreign ownership or liquidity?
- Eiere som styrer gir størst lønnsomhet. Horisont 3, no. 3,
- Governance and performance revisited, in G. Gregouriu. and P. U. Ali, (eds),
International Corporate Governance after Sarbanes-Oxley. Wiley, forthcoming, 2006.
Here is what we find:
- Corporate governance does matter for economic performance.
- Insider ownership matters the most, outside ownership concentration destroys market value, and direct ownership is
superior to intermediaries like institutions and the state.
- Performance decreases with increasing board size, the use of non-voting shares, and with increasing leverage and
- These results persist across a wide range of single-equation regression models, suggesting that governance
mechanisms are mostly independent and may be studied one by one rather as a bundle.
- We cannot generalize these findings, which are based on Tobin's Q, to other performance measures like the market
return on equity or the book return on assets.
- Several significant relationships change sign or disappear in simultaneous equation models, which are used to
capture reverse causation between governance and performance and for potential endogeneity between the mechanisms.
- We suspect that this apparent indication of optimal, firm-specific governance systems may instead be due to the
fundamanetal problem that corporate governance theory is rather silent on how the mechanisms interact. Because the
simultaneous equation results are quite sensitive to the choice of instruments, and because there is no proper
theoretical basis for choosing instruments, we are not convinced that the simultaneous equation approach is superior to
single-equation models when testing the governance-performance interaction.