Corporate governance, complementarities and the value of a firm in an emerging market: the effect of market imperfections

Purpose - The purpose of this paper is to test the role of corporate governance instruments in affecting the value of a firm (CGVF) in isolation and in combination of each other in a developing financial market characterized by the existence of additional imperfections in this market. Design/methodology/approach - Multiple regression analysis is performed on the data which are collected by using stratified random sampling technique for the companies listed in the Kuala Lumpur Stock Exchange for the years 2000-2003. Findings - The results for the study suggest that majority shareholders expropriate minority shareholders in this market. On the contrary, a bigger board, market liquidity, efficient utilization of assets and informational efficiency in the financial system have a value adding impact on the firms' performance. The results on the role of corporate governance instruments (board size and CEO duality) in affecting the value of a firm in combination with each other suggest that the additional imperfections prevalent in the selected market limit the strength of individual instruments in improving the marginal benefits of each other, explaining the nature of business operations in this market. Practical implications - The results provide new insights into the CGVF relationship and highlight the importance of corporate governance provisions relevant to the firms of the developing market. These results can be used by the regulatory authorities to make effective corporate governance policies. Originality/value - This paper contributes to the literature by performing a comprehensive study by using a correct proxy to value a firm and by performing additional tests for robustness to provide valid results on the CGVF relationship. Furthermore, the role of additional imperfections and implications of various business theories in explaining the relationship between corporate governance instruments (in isolation and in combination) and the value of a firm is also analysed.