Corporate Governance, Firm Profitability, and Share Valuation in the Philippines
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Corporate Governance, Firm Profitability, and Share Valuation in the Philippines - Asian Development Bank
CORPORATE GOVERNANCE, FIRM PROFITABILITY, AND SHARE VALUATION IN THE PHILIPPINES
JUNE 2019
Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)
© 2019 Asian Development Bank
6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines
Tel +63 2 632 4444; Fax +63 2 636 2444
www.adb.org
Some rights reserved. Published in 2019.
ISBN 978-92-9261-690-8 (print), 978-92-9261-691-5 (electronic)
Publication Stock No. TCS190211
DOI: http://dx.doi.org/10.22617/TCS190211
The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.
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Cover design by Rocilyn Laccay.
CONTENTS
TABLES AND FIGURES
ABBREVIATIONS
ACKNOWLEDGMENTS
We would like to acknowledge the support and assistance provided by the following in the preparation of the study:
Asian Development Bank (ADB)
1. Mohd Sani Mohd Ismail, Senior Financial Sector Specialist, Public Management, Financial Sector, and Trade Division, Southeast Asia Department (SERD)
2. Florissa Villaluna Barot, Public Management, Financial Sector, and Trade Division, SERD
Institute of Corporate Directors (ICD) Philippines
1. Jesus Estanislao, Chairman Emeritus
2. Alfredo Pascual, Chief Executive Officer (CEO)
3. Ricardo Nicanor Jacinto, former CEO
4. Roberto Bascon, Jr., Director for Corporate Governance Analytics
5. Cathyrine Perez, Corporate Governance Analyst
6. Regine Marie Cinco, Director for Research and Development
7. Eric Rosales, Former Business Researcher
8. Lara Gianina Reyes, Business Researcher
University of Asia and the Pacific (UA&P)
1. Anna Maria Mendoza, Dean and Associate Professor, School of Management
2. Jodie Claire Ngo, Secretary of the Operations Committee and Faculty Member, School of Management
3. Elsie Laguador, Administrative Officer, School of Management
4. Nicole Valle, Researcher
EXECUTIVE SUMMARY
This study focused on determining the relationship between corporate governance score and each of the following: (i) market capitalization of the firm, (ii) market valuation as measured by Tobin’s Q ratio, and (iii) profitability as measured by return on equity. The selection of 73 publicly listed companies in the Philippines was based on having a corporate governance score of 60 and above. Data for 2014–2016 were taken from the audited financial statements of the companies, the database of the Philippine Stock Exchange, and the ASEAN Corporate Governance Scorecard.
The results of the study showed that there is a positive and statistically significant relationship between (i) corporate governance and market capitalization, (ii) corporate governance and market valuation as measured by Tobin’s Q ratio, and (iii) corporate governance and profitability as measured by return on equity.
It can be stated that an increase in the corporate governance score of a publicly listed company in the Philippines would mean an increase in its (i) market capitalization, (ii) market valuation as measured by Tobin’s Q ratio, and (iii) profitability as measured by return on equity. The results indicate that publicly listed companies which have given importance to the practice of good corporate governance would benefit from this in terms of good financial performance.
1. INTRODUCTION
1.1 ASEAN Corporate Governance Scorecard
The ASEAN Corporate Governance Scorecard