Corporate governance, firm performance and complementarities in a developed market: A study of the Australian case for the period 2000-2003

This article examines the role of corporate governance instruments in affecting the value of a firm (CGVF) in isolation and in combination of each other in a developed financial market. This article contributes to the literature by performing a comprehensive study by using a correct proxy to value a firm and integrating ASX principles of corporate governance (2003) in the results of the study. Additional tests for robustness are also performed to provide valid results about the CGVF relationship. Furthermore, the implications of various management theories in explaining the relationship of corporate governance instruments (in isolation and in combination) in affecting the value of a firm are also analyzed. The results for the study suggest that a higher use of debt and a bigger board deteriorate shareholders' value in this market endorsing ASX principles for corporate governance (2003). The results further show that rights of shareholders are protected as the higher liquidity improves the value of a firm. Similarly, market efficiency leads to investors' confidence that results in a higher performance supporting the essence of ASX principles (2003) in the developed financial market. Finally, tests related to the complementarities of internal corporate governance instruments suggest that board size and CEO duality do not improve the marginal benefits of each other in the developed market. The results provide new insights on the CGVF relationship and are of value to the policy makers and academics in the selected market. © 2014 Macmillan Publishers Ltd.