In our study which is to find the correlation between corporate governance disclosure and asset size, leverage, profitability, listing age, and foreign ownership, the correlation for corporate governance disclosure and leverage is negative. The results for the correlation between corporate governance disclosure and foreign ownership is also negative as well. What could be the implications of the negative correlations? Is there any way to explain as to why foreign ownership and leverage is negatively correlated with corporate governance? Our study also found out that there is no significant relationship between profitability and corporate governance disclosure. Is there any way to explain or to interpret the absence of the relationship between profitability and corporate governance disclosure? Thank you for the responses.
Emmanuel, as far as the somewhat puzzling result for governance and foreign ownership, are you:
Potential investor from a country with weaker governance may be looking for good governance and safety, but an investor from a country with good governance may be looking to increase returns by investing in riskier investments. So, if possible, maybe split the sample into the subsamples by the country of foreign investor having better or worse governance than the country you are examining, and then control for the risk/return characteristics of the firm, and see if the sign/significance on foreign ownership persists.
All of this may not help. but if it does, there are some studies in the vein of LLSV Law and Finance Literature that might justify the findings.
Dear Emmanuel Alpas Sabay
Greetings,
Please see the attached file to find the relationships between these variables may be useful for you.
Best Regards
Hi,
Perhaps you may benefit from this paper:
T Aabo, C Pantzalis, JC Park, "Multinationality and opaqueness", Journal of corporate Finance, 2015, 30, p 65 -84.
Greetings
Dear Emmanuel,
Regarding the negative correlation of corporate governance (CG) disclosure with profitability, one reason could be that profitability can be impacted by CG (at least this is the prevailing doctrine at the moment). But profitability may not be necessarily impacted by disclosure of CG mechanisms at place. With other words, as long as there are appropriate mechanisms at place like a functioning board of directors, a functioning alignment of shareholders' and executives' interests and so on which positively influence the profitability, this may be perfectly fine, disregarding disclosure. It would be aonther question to analyse why companies with a functioning CG do not disclose this fact or to analyse why profitability in companies with a functioning CG is negatively correlated with profitability (if it is so), but, again, this does not deal with disclosure.
Paul
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