Work

Governance Indices and Valuation Multiples: Which Causes Which?

Year: 2007

Type: preprint

Abstract: Two recent papers document a significant relation between valuation multiples and governance indices during the 1990s. We test whether causation runs from governance to valuation or vice versa. We find that valuation multiples during the early 1980s, a period preceding the adoption of the provisions comprising the governance indices, are highly correlated with valuation multiples during the 1990s. After controlling for valuation multiples during 1980–1985, no significant relation exists between contemporaneous valuation multiples and governance indices during the 1990s. The results are consistent with the hypothesis that firms with low valuation multiples were more likely to adopt provisions comprising the governance indices, not that the adoption of these provisions depresses valuation multiples.

Source: SSRN Electronic Journal

Authors: Kenneth Lehn, Sukesh Patro, Mengxin Zhao

Institutions: University of Pittsburgh, Northern Illinois University, United States Securities and Exchange Commission

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W1494658472

Cites: 6

Cited by: 31

Related to: 10