Comply or Explain Approach and Firm Value on the Bucharest Stock Exchange

Abstract

This paper aims at exploring the influence of compliance with the principles and recommendations stated within the Bucharest Stock Exchange (BSE) Corporate Governance Code on firm value, for a sample of companies listed in Romania, in 2011. Firm value was proxied both through accounting measures (such as return on assets, ROA and return on equity, ROE) and market measures (such as earnings per share, EPS), all being industry-adjusted. Based on the ‘Comply or Explain’ Statement issued by the BSE, there was conceived a questionnaire having the purpose to develop corporate governance ratings. Thus, we report the global corporate governance rating and a set of specific ratings as regards transparency and reporting, board and committees, shareholder rights, as well as corporate social and environmental responsibility. Therefore, by estimating several multivariate linear regression models, our results provide support for a positive and statistically significant relationship between the rating related to transparency and reporting and firm value, likewise between the rating related to corporate social and environmental responsibility and firm value, but only for industry-adjusted ROA. However, there was noticed the lack of any statistically significant relationship between corporate governance ratings and firm value, when industry-adjusted ROE and industry-adjusted EPS were employed.