The Relation between corporate governance and market value: mitigating endogeneity Problems

This paper investigates whether the adoption of good corporate governance practices influences the market value of Brazilian firms. For this purpose, we used an unbalanced panel over the period from 2002 to 2010, composed of 233 listed nonfinancial companies, for a total of 1,110 observations. Because of endogeneity problems such as omitted variables, simultaneity and the feedback effect, we employed dynamic multiple linear regression models, estimated by the systemgeneralized method of moments (System GMM). The results indicate that firms listed in one of the three premium corporate governance segments of the BM&FBovespa (Level 1, Level 2 and Novo Mercado) are priced higher by the market compared to firms listed in the traditional trading segment. Therefore, corporate governance has a positive effect on the market value of Brazilian firms.