An Integrated Framework of Corporate Governance and Firm Valuation - Evidence from Switzerland

Abstract

Recent empirical work shows evidence of a positive relationship between firm-specific corporate governance and firm valuation. Instead of looking at a single control mechanism, we use a broad corporate governance index and additional variables related to ownership structure, board characteristics, and leverage to provide a comprehensive description of firm-level corporate governance for a broad sample of Swiss firms. We carefully control for the endogeneity of these control mechanisms by developing a system of simultaneous equations. Our results support the widespread hypothesis of a positive relationship between corporate governance and Tobin's Q.