Does relative strength in corporate governance improve corporate performance? Empirical evidence using MCDA approach

Yilmaz Guney, Elvis Hernandez-Perdomo, Claudio Rocco

Research output: Contribution to journalArticle

Abstract

Academics and practitioners have developed different constructs to quantify corporate governance quality. Despite the limitations of the existing measures, they are still being commonly used. The literature finds that the relationship between performance and corporate governance quality can be positive, non-existing or even negative. To resolve this puzzle, we introduce a multi-criteria decision analysis (MCDA) approach to construct an alternative corporate governance quality synthesising companies’ practices and mechanisms through an exhaustive pair comparison procedures based on outranking relationships analysis. Our approach compares the aggregate quality with a well-known corporate governance index, ASSET4 ESG in Thomson Reuters Datastream, using data for the US firms. Using this MCDA approach based on PROMETHEE methods and econometric analysis, we obtain consistently a negative and strong link between firm performance and corporate governance quality. The findings are of particular interest to both scholars and decision makers including providers of corporate governance indices and rating agencies.
Original languageEnglish
JournalJournal of the Operational Research Society
Early online date14 Jun 2019
DOIs
Publication statusE-pub ahead of print - 14 Jun 2019
Externally publishedYes

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