The effect of governance mechanisms on the financial and stock market performance: the case of Canadian companies Online publication date: Fri, 14-Oct-2022
by Hanen Ghorbel; Manel Kolsi
European J. of International Management (EJIM), Vol. 18, No. 4, 2022
Abstract: The main contribution of this paper is to revisit the governance-performance relationship, by highlighting the non-linearity of the model expressing the effect of governance on the performance. The study is conducted over a 5-year period between 2011 and 2015 using panel regressions on a sample of Canadian publicly traded firms. Our estimations suggest that the effect of governance on the financial and the stock market performance remains undetermined. Using Hansen's (2000) model we show the presence of a threshold in the relationship between performance, measured by Tobin's Q and corporate governance. We conclude that the link between governance and firm performance is not linear and depends on the level of disclosure about governance. Our results are useful for regulators and investors by emphasising the impact that disclosure of governance information may have on firms' performance. Investors should therefore use the level of disclosure of governance information as performance indicators in their investment decision.
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