The corporate governance index, or how to measure the impact of certain corporate governance issues
Insights from research at HEC Lausanne-UNIL – Although it is widely accepted that governance rules play a major role in the smooth running of businesses and contribute to market equilibrium, how can we measure businesses’ degree of responsibility in this area? And how can we evaluate the effect of poor governance practices or the effectiveness of new arrangements? This is what researchers Prof. Boris Nikolov and Prof. Norman Schürhoff from HEC Lausanne, along with their co-author Erwan Morellec (EPFL), set out to examine in their latest research.
Whenever a business fails or a financial crisis occurs, the finger is pointed at governance rules and new arrangements are put in place. However, in order to introduce measures that can resolve governance issues effectively, there needs to be an initial assessment of the impact of behaviours that are detrimental to the value of the business and stakeholder groups.
By examining two common governance issues – one where a majority shareholder influences a business’s decision-making at the expense of the minority shareholders, and one where it acts at the expense of creditors – the three researchers were able not only to demonstrate a cause-and-effect relationship but above all, put a figure on the loss of value suffered by the business, depending on the behaviour of the dominant shareholder.
Would you like to know more about the corporate governance indexes developed and understand the principles of the model created by our professors and tested on more than 12,000 businesses? Find out more about the results of their research in the article on our blog, HECImpact.
Get to know more about:
- Prof. Boris Nikolov: Boris Nikolov is Full Professor of Finance at HEC Lausanne, University of Lausanne, the Director of the PhD Program in Finance, and a Swiss Finance Institute Professor. Professor Nikolov’s primary areas of research are corporate finance and corporate governance. In particular, he works in the area of ESG (environmental, social, and governance) finance where he develops novel corporate governance indices. Recently, he has focused on how Artificial Intelligence can help address corporate finance questions.
- Prof. Norman Schürhoff: Norman Schürhoff is Full Professor in the Department of Finance at HEC Lausanne, University of Lausanne, and holds a Swiss Finance Institute Senior Chair. His main research interests lie in capital markets and corporate finance: over-the-counter markets, financial intermediation, capital structure dynamics, corporate governance, sovereign debt pricing, news and social media, and supply chain finance have attracted his research curiosity in recent years.
- Department of Finance: research carried out by the Department of Finance covers all aspects of finance, including speculative market price determinants, corporate finance, market microstructure and financial institutions.
par Chantal Behar