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Literature Review on Corporate Governance

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Brown, Robinson, Caylor (2004) study the links between Corporate Governance and Firm Performance using 2,327 companies based on 51 corporate governance provisions provided by Institutional Investor Services (ISS) and using the Pearson and Spearman correlation analysis finds that companies with a poor governance are relatively less profitable and less valuable. In addition, they find that executive and director compensation is highly associated with good performance, while the category of governance is less associated with good performance.

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Johnson, Boone, Breach and Friedman (2000) study whether the weakness of legal institutions for corporate governance had an important effect on the magnitude of the depreciation and the fall of the stock market in the context of Asian countries during the crisis. Taking a sample of 25 emerging market companies and using regression coefficient analysis finds that the problems of the management agencies can make countries with a weak legal system vulnerable to the loss of investor confidence that results in a fall in the value of assets and a decrease in the exchange rate. They find that the variables of corporate governance affect more the variation in the performance of the stock market and the exchange rate than the macroeconomic variables.

In this study on corporate governance and dividend policy in emerging markets, with a sample of 365 companies from 19 countries, it found that companies with stronger corporate governance have a higher dividend payment and there is also a growing negative relationship between the payment of dividends and growth opportunities. In addition, companies with a stronger governance show higher profits. The study also reveals that countries with greater protection of investors have a limitation of payment of dividends. In addition, the protection of investors at the national level and corporate governance at the company level complement each other.

Bernard Black (2001), in this study on the relationship between corporate governance behavior and the market value of the Russian company, he took a sample of 21 Russian companies. The study reveals that CG behavior has a strong impact on market value in a country where the legal and cultural restriction on corporate behavior is weak. According to World Bank reports, public corporations in East Asia tend to have low levels of transparency and disclosure quality. Some commentators and policy advisors believe that closer adherence to international disclosure rules and the adoption of international accounting standards are essential to improve corporate transparency in the region (World Bank, 1998, East Asia).

Jayanth R.Varma (2002), studies and documents, accounting scandals and corporate fraud that came to light during 2001 and 2002 of Enron and other companies in the United States and elsewhere. He then describes the failure of governance and supervision, as well as the failure of the market discipline that took place and continues to analyze the lessons that can be drawn from these episodes. He concluded that while Enron and the related scandals represent a massive regulatory failure, those failures are inherent in the regulatory process. Regulators are poor at detecting fraud and, therefore, suggest that market discipline be strengthened. In addition, the study also suggests four important measures: encouraging hostile takeovers, allowing free short selling, allowing and facilitating collective judgments, and promoting competition in the securities industry.

Back, Kang & Park (2004), study the effect of corporate governance on the performance of the company during the Korean crisis (1997), using a sample of 644 non-financial institutions listed on the Korean Stock Exchange between November 1997 and December 1998 and using a statistical regression analysis, They concluded that companies with higher equity ownership of foreign investors experience a smaller reduction in the value of their shares. Companies that have a higher quality of disclosure and alternative sources of external financing also suffer less and affiliated companies also exhibit a greater drop in the value of equity. Companies that have more cash flow than voting rights and those that obtain more from the bank obtain lower returns and similar effects in diversified companies, those with high leverage and those that are small and risky. They also find that the problem of the agency between the majority shareholders and the minority shareholders is very serious during the crisis and the concentrated property has strong incentives to maximize its own profit or the total size instead of the individual companies.

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