Does Corporate Governance Compliance Increase Company Value? Evidence from the Best Practice of the Board
Round 1
Reviewer 1 Report
Report on
``Does Corporate Governance Compliance Increase Company Value? Evidence from the Best Practice of the Board''
by M. Aluchna & T. Kuszewski
August 2020
- Summary
The authors exploit a panel of companies listed on the Warsaw Stock Exchange during the period 2006--2015 to address the question of whether
corporate adoption of certain corporate governance practices can causally affect a company's normalized valuation, as measured by the logarithm of
Tobin's Q. The authors devise three variables to quantify the extent of a given firm's adoption of various corporate governance practices,
in particular---
1. FORMALCOMPL, taken to be the sum of the following variables:
- the number of independent directors on the corresponding supervisory board,
- an indicator variable for the existence of an audit committee reporting to the supervisory board and
- an indicator variable for the existence of a remuneration committee reporting to the supervisory board;
2. MINCOMPL, taken to be the sum of the following variables:
- the number of independent directors on the corresponding supervisory board and
- an indicator variable for the existence of an audit committee reporting to the supervisory board;
3. SUBSTCOMPL, taken to be the sum of the following variables:
- the number of independent directors on the corresponding supervisory board;
- an indicator variable for the presence of an independent supervisory board chairman;
- an indicator variable for the existence of an audit committee reporting to the supervisory board and
- an indicator variable for the existence of a renumeration committee reporting to the supervisory board.
The authors present the results of some regressions that suggest that compliance with corporate governance principles as measured by the variables
FORMALCOMPL, MINCOMPL or SUBSTCOMPL all have significant negative effects on firm valuation.
2. Evaluation
I did have a concern regarding the construction of the variables used to quantify the extent of a company's compliance with corporate governance
practice. In particular, the construction of the compliance variables essentially imposes the constraint that the underlying variables used to construct FORMALCOMPL, MINCOMPL and SUBSTCOMPL all enter the regression relationship with the same coefficient, which seems implausible. I
suggest that the authors simply include the number of independent supervisory board members, along with the indicator variables included
in the construction of SUBSTCOMPL, as separate regressors in a fixed effects regression.
Author Response
Thank you very much for your review, please see the attachment.
Author Response File: 
Author Response.docx
Reviewer 2 Report
I think the paper is interesting and rather well prepared.
I suggest dividing the discussion and conclusion on discussion and conclusion.
It would be good to add a limitation of the paper to the conclusion.
Now we have the year 2020 - why the analysis is ten years 2006-2015 it good to describe the motivation of that choice.
Author Response
Does Corporate Governance Compliance Increase Company Value? Evidence from the Best Practice of the Board
Response to Reviewers
First, we would like to thank the Reviewers for their comments. We incorporated all suggestions to the revised version of the paper. Below we present the detailed repose to all comments.
Reviewer 2
Comment 1: I think the paper is interesting and rather well prepared.
Response: Thank you very much.
Comment 2: I suggest dividing the discussion and conclusion on discussion and conclusion.
Response: Thank you for this remark. We divided both sections accordingly. We have now two separate sections on discussion and conclusion.
Comment 3: It would be good to add a limitation of the paper to the conclusion.
Response: Thank you for this remark. We added the limitations. Specifically we acknowledge that in our research – we focus on the board best practice and one country. Further research should address a wide scope of code provisions and cover a larger sample of companies from different economies. Adding the variable on institutional environment such as measures of investor protection or rule of law would allow to understand the effect of regulatory context on the efficiency of corporate governance provisions.
Comment 4: Now we have the year 2020 - why the analysis is ten years 2006-2015 it good to describe the motivation of that choice.
Response: Thank you for this remark. The period of 2006-2015 is chosen purposefully due to a relative stability of corporate governance code recommendations. We added this information in abstract and in the text.
Author Response File: Author Response.docx
Reviewer 3 Report
I carefully read this paper and I am really delightd about its content.
I have several suggestions which would be good to be considered in the revision of this manuscript.
1.I suggest the title to be more representative for the content and especially for the space in which this study is applied, namely Poland For instance in my opinion„ Does Corporate Governance Compliance Increase Company Value? Evidence for emerging Poland market” sounds better than „ Does Corporate Governance Compliance Increase Company Value? Evidence from the Best Practice of the Board”,
2.In the section of literature review the authors need to highlight the results for many strand of studies regarding the link between corporate governance and company’s value. Then, referring to the studies conducted on emerging countries here there are different results: some of the studies evidence a positive influence; others evidence a negative influence and even no influence.
3.Regarding the obtained results, how these results may be related to other findings in literature? How about, specifically other findings from other emerging countries? For emerging Romania for instance, the study of Borlea et a (2017) l do not found any statistically significant association between any of the board characteristics and performances ( Borlea et al (2017), Board characteristics and firm performances in emerging economies. Lessons from Romania, Ekonomska Istraživanja). Interested results for Romania can also be found in Achim et al. (2016), Corporate governance and business performance: evidence for Romanian economy, Journal of Business Economics and Management, 17(3). Of course, any results for emerging countries could be read and related with the present finding.
4.The table 2 needs to enhance which are the dependent variables, independent variables and control varaibles. As all the variables are „Quantitave, real” (regarding Type), maybe the column with Type in the Table 2 could be cut.
5.When the hypotheses are assessed (page 7), the authors need to describe more what do the terms „formal”, „minimum” and „substantive”compliances mean? A presentation is made at the next page when the variables are described. However, it is required that the readers need to know from the moment of assessing the hypotheses what these terms represent. In addition, these issue needs to be related to the researches presented in the part of literature review.
6.At pge 7 row 328, what is IPOs? When symbols are used, the authors need to previously used explanations of the abbreviations.
7.I appreciate especially the good and complex methodology.
8.I likes very much the part of results and discussion. This part is very well-done with robustness checks and many discussions and corelation with the literature in the field. However, the results my be better related with the specific literature in the field available for emerging countries. Generally, the authors find a negative influence of corporate governance on market value expressed with Tobin’s Q. How these results are related with other studies found for emerging European Countries? Here, more discussions are required. This part could be better developped.
This paper is very well-worked and could be published after the corrections are made.
Round 2
Reviewer 1 Report
Minor comment:
p. 11: I find the testing of normality for variables that have a lattice distribution, or are otherwise obviously non-normally distributed to be a bit bizarre.
