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  • Does corporate governance still affect firm performance after controlling the distress factor?

    Author(s)
    Lai, Syouching
    Li, Hungchih
    Li, Bin
    Griffith University Author(s)
    Li, Bin
    Year published
    2016
    Metadata
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    Abstract
    We explore the impact of corporate governance on firm performance. We first identify whether corporate governance can still be an influential factor or has been largely captured by the traditional Fama-French three-factor model. More importantly, our study adds a financial distress factor to the Fama-French three-factor model to form a four-factor pricing model (labelled as the ‘financial distress four-factor model’). We find that for the US Russell 1000 firms, the financial distress four-factor model is the better model of the two models considered. We further find that the financial distress four-factor model has a higher ...
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    We explore the impact of corporate governance on firm performance. We first identify whether corporate governance can still be an influential factor or has been largely captured by the traditional Fama-French three-factor model. More importantly, our study adds a financial distress factor to the Fama-French three-factor model to form a four-factor pricing model (labelled as the ‘financial distress four-factor model’). We find that for the US Russell 1000 firms, the financial distress four-factor model is the better model of the two models considered. We further find that the financial distress four-factor model has a higher explanatory power in capturing the return variation. We find that the differences between the return of firms with good (weak) corporate governance and the expected return are insignificantly different from zero for most portfolios in all the two models. The financial distress four-factor model, however, has the fewer portfolios with return difference being significantly different from zero, implying that corporate governance has been better priced in the financial distress factor.
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    Journal Title
    Applied Economics
    Volume
    48
    Issue
    13
    DOI
    https://doi.org/10.1080/00036846.2015.1096003
    Subject
    Applied economics
    Applied economics not elsewhere classified
    Econometrics
    Publication URI
    http://hdl.handle.net/10072/99776
    Collection
    • Journal articles

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