The value-relevance of corporate governance: Australian evidence

Abstract

This study provides stakeholders with an understanding of the effectiveness of corporate governance practices by demonstrating the link between corporate governance and firm valuation. It is proposed that the presence of good corporate governance practices enhances the reliability of financial statement information, thereby increasing the market’s reliance on this information to value the firm. The specific focus of this research is to determine the impact of corporate governance practices on the value-relevance of earnings and the book value of equity as reported in a firm’s financial statements. Results indicate that corporate governance is not value-relevant in its own right. However, good corporate governance practices enhance the value-relevance of earnings but reduce the value-relevance of the book value of equity.