the stock price, since companies with better corporate
governancemaybebetterrunanddeliversuperioroperating
results. In their study, Gompers et al. do control for
firm-specificcharacteristicssuchasreinvestmentandgrowth
andfindthatcorporategovernancecontinuestoaffectstock
prices.Wewouldtakethatasevidencethatmarketsdotryto
buildin an expectedvalue of controlintostock prices. In
otherwords,wewouldexpectafirmwherestockholdershave
strongpowerstoreplaceandchangemanagerstotradeata
highermarketvaluethananotherwisesimilarfirm(interms
of risk, growth, and cash flow characteristics) where
stockholdershavelimitedornopowerovermanagers.Black,
Jang, and Kim (2004) did a similar studyfor just Korean
companies, and their conclusions are similar: Firms with
weakcorporategovernancehavelowerreturnsandtradeata
lower Tobin’s Q than firms with strong corporate governance.
48 Inarelatedresult,Baek,Kang,andPark(2004)foundthat
cross-held (chaebol) firms with concentrated family
ownership in Korea had much bigger declines in equity
valuesduringtheKoreanfinancialcrisisin1997,whichthey
attribute to the weaker corporate governance at these firms.
49
Corporategovernancesystemsarestrongerinsomecountries
than others and there have been a few studies that have
looked atthe relationship between firm performance/value
andcorporategovernanceacrosscountries.KlapperandLove
(2004)lookedat 14 emergingmarketswithwidedifferences
in corporate governance and legal systems. Theyfind that
countries with weaker legal systems tend to have weaker
corporategovernancesystems.Theyalsoconcludethatfirms
with stronger corporate governance systems have higher
market values and report better operating performance.