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Corporate Governance, Firm Profitability, and Share Valuation in the Philippines
Corporate Governance, Firm Profitability, and Share Valuation in the Philippines
Corporate Governance, Firm Profitability, and Share Valuation in the Philippines
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Corporate Governance, Firm Profitability, and Share Valuation in the Philippines

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This study examines 73 publicly listed companies in the Philippines to determine the relationship between the quality of corporate governance practices and company performance. It concludes that as a company's corporate governance practices improve, there is likely to be positive and significant impacts on its market capitalization, market valuation, and profitability. The study was jointly conducted by the Asian Development Bank, the Institute of Corporate Directors, and the University of Asia and the Pacific.
LanguageEnglish
Release dateJun 1, 2019
ISBN9789292616915
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.

    ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned.

    By making any designation of or reference to a particular territory or geographic area, or by using the term country in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.

    This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. For attribution, translations, adaptations, and permissions, please read the provisions and terms of use at https://www.adb.org/terms-use#openaccess.

    This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material.

    Please contact pubsmarketing@adb.org if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo.

    Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda.

    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

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