Corporate Governance, Family Ownership and Firm Value: the Canadian evidence

TLDR

The study examines the relationship between firm value (Tobin's q) and new corporate governance indices in 263 Canadian firms. The analysis employs these governance indices to assess their impact on firm performance. The study finds that while corporate governance matters in Canada, only specific elements—such as compensation, disclosure, and shareholder rights—enhance firm performance, whereas overall governance scores and board independence show no positive effect, with a negative impact observed for family‑owned firms, and no evidence of endogeneity.

Abstract

We analyse the relationship between firm value, as measured by Tobin's q, and newly released indices of effective corporate governance for a sample of 263 Canadian firms. The results indicate that corporate governance does matter in Canada. However, not all elements of measured governance are important, and the effects of governance do differ by ownership category. For the entire sample of firms we find no evidence that a total governance index affects firm performance. This is mainly because we find no evidence that board independence, the most heavily-weighted sub-index, has any positive effect on firm performance. Indeed, for family-owned firms we find that the effect is negative. In general, sub-indices measuring effective compensation, disclosure and shareholder rights practices enhance performance and this is true for most ownership types. We also find no evidence that governance practices are endogenous.