Gompers versus Bebchuck Governance Measure and Firm Value

Frederick Adjei^1, and Mavis Adjei²

¹Economics and Finance Department, Southeast Missouri State University, Cape Girardeau, USA

²Marketing Department, Southern Illinois University Carbondale, Carbondale, USA

Cite this paper:
Frederick Adjei and Mavis Adjei. Gompers versus Bebchuck Governance Measure and Firm Value. Journal of Finance and Economics. 2016; 4(6):184-190. doi: 10.12691/jfe-4-6-3

Abstract

This study compares the two primary measures of corporate governance quality, [1], GIM index and [2] E index using tests for comparing two nonnested models. We find that the GIM index has statistically significantly more power than the E index in explaining the variability in firm value, as measured by Tobin’s Q. This finding suggests that the IRRC provisions excluded from the E index may have a statistically significant incremental power in explaining the variability in firm value.

Keywords:
corporate governance firm value

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