Causality Between Firm-Level Governance and Firm Value

Abstract

This paper investigates empirically whether there is a causal relation between firm-level governance and firm value. The firm-level governance quality is quantified by using anti-takeover provisions, which are classified boards, fair price, and poison pill. The firm value is measured by Tobin’s Q and return on assets in the part of Robustness Check. The data was found in platform WRDS, with database vendors of Compustat and Institutional shareholder services (ISS), ranged from 1998 to 2006, after data matching and data cleaning, with 1645 left. The regression results indicate that there is causality between firm-level governance and firm value, specifically that poor governance significantly contributes to the reduction of firm value. The robustness check has certified that the results in the regression analysis are credible. Further research will be desirable for firm data from countries such as China. In addition, the range of observation years of the data is expected to expand as data vendors have increased authority to access to the data.