"Governance" premium? evidences from the nine emerging markets of Asia

Abstract

This paper hypothesizes the relationships of corporate governance, firm performance, and cost of capital, using the firm-level sample from the nine emerging markets of Asia in 2001 and 2002. Our empirical results confirmed the relationship between the corporate governance and firm performance, measured by the stock return and the rate return on asset, is not significant. Evidence implied that the stock retuen of emergeng markets may be largely influenced by unknown but irrational factors, and their accounting reports of the companies listed in such stock exchange are not trustworthy due to window-dressing. The fundamental value and the value of corporate governance are thus not incorporated intot the re-evaluation of the prices of the related stocks. However, empirical evidence also indicated that the firms with better corporate governance can reduce their costs of capital in a defensive manner, realized when a raise of fund is required.