Connection between corporate governance and company valuation in Assignment

Connection between corporate governance and company valuation in emerging market countries - Assignment Example fferent features of the corporate governance structures like the protection of the interests of minorities and in adequate rights of investors lead to poor performance within the firm and low value creation for the business (LaPorta, Silanes and Shleifer, 1999, pp.471-517). In many similar studies, researchers have indicated that the firms which follow lesser or no stringent rules in the corporate governance practices generally tend to have lower valuation in the market. Klapper and Love (2012) have focused their study on the emerging markets and indicate that poor corporate governance practices can increase the risks that are associated with the investments in the emerging markets (Klapper and Love, 2004, p.703-725). In a particular study on the emerging market of Korea, Black and Kim (2003) have pointed out that corporate governance is a significant dynamic of the market value of the firms in Korea, especially for the public companies (Black, Bernard and Kim, 2010, pp.414-425). Bla ck (2001) also establishes a significant linkage between the corporate governance and the value of firms in the market of Russia. Black, Bernard, Love and Rachinsky (2006), suggests that whereas in developed countries like the United States and Europe the corporate governance practices are not as critical as factors like ownership structure from deciding the value of the firm, in developing economies the role of corporate governance in deciding the value of the businesses is significant (Black, Love and Rachinsky, 2006, pp.361-379). Transparency can be implemented by stringent corporate governance practices and transparency is a critical factor in preventing the conflict of interest of the controlling shareholders and the minor shareholders. The conflict of interest between the controllers of the business and the external finance sources of the business may result in the development of the principal agent problem. The principal agent problem will create agency costs that are likely to