Corporate Risk and Shareholder Value - Research Report

Abstract

In order for the capital market to grow sustainably and to be relatively crisis-proof corporate governance has to reduce asymmetric information among shareholders and to allow their accurate reaction to firms' fundamental changes. A preliminary research conducted on a small sample of firms (n = 4) and introducing to a broader study of a more numerous sample (n = 80 - 100), opened on two paradigms of corporate governance. The first one, more frequently practiced as it seems, displays important asymmetric information, high transaction costs, high anticipated agency costs, relatively high corporate risk, relatively low long-term shareholders' value and leads investors to underestimate operational risk and market risk as firm's fundamentals. The second one, seemingly less frequent, is the opposite: low asymmetry of information, low transaction costs, low anticipated agency costs, relatively low corporate risk, relatively high long-term shareholders' value, leading investors to an accurate evaluation of operational risk and market risk as firm's fundamentals.