| The primary contribution of this paper is the consistent estimation of the relationship between corporate governance and performance, by taking into account the inter-relationships among corporate governance, management turnover, corporate performance, corporate capital structure, and corporate ownership structure. I make three additional contributions to the literature:; First, I find that better governance, as measured by the Gompers, Ishii, and Metrick (GIM, 2003) and Bebchuk, Cohen and Ferrell (BCF, 2004) indices, stock ownership of board members, and CEO-Chair separation, is significantly positively correlated with better contemporaneous and subsequent operating performance. Board independence is negatively related to contemporaneous and subsequent operating performance. Interestingly, none of the governance measures are correlated with future stock market-based measures of performance.; Second, in several instances the inferences regarding the performance-governance relationship do depend on whether or not one takes into account the endogenous nature of the relationship between governance and performance.{09} This is particularly the case when considering stock market-based measures of performance.; Third, given poor firm performance, the probability of disciplinary management turnover is positively correlated with stock ownership of board members and with board independence. However, given poor firm performance, the probability of disciplinary management turnover is negatively correlated with better governance measures as proposed by GIM and BCF. |
