The effect of corporate governance on valuation in Scandinavian firms
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- NTNU Handelshøyskolen 
This master thesis examines the relationship between corporate governance mechanisms and firm valuation. The mechanisms being studied are: CEO being board member, CEO compensation, board size, independency diversity, gender diversity, ownership concentration, and shareholdings of institutional investor, government, and other strategic owners (consisting of corporate, holding, and individual investors). We investigate how these board and owner structures effect the firm valuation, measured by Tobin’s Q, on a sample of 722 observations from Scandinavia. The econometric method being used consists of weighted least square (WLS) and fixed effects regressions. We further apply structural equation modelling to control for the possibility of dynamic endogeneity, as well as for observing the direct and indirect effects of corporate governance mechanisms through financial performance on firm valuation. The structural equation model is one not typically used on corporate governance mechanisms, which makes this an interesting contribution to the subject of corporate governance. Our results show that several mechanisms of corporate governance have an observable impact on firm valuation. CEO compensation, government, and other strategic owners has a significant negative effect on the valuation of a firm. In addition, from our structural equation model, we find contradictory effect from CEO being a board member, CEO compensation, ownership concentration, and government, and other strategic owners on performance and valuation of a firm. This is an interesting result and highlights the need for a pluralistic theoretical framework because a single mechanism might have several different effects on the performance and valuation of a firm. With these findings, we hope to highlight the ambiguity present in studies of corporate governance mechanisms effect on performance and valuation, a perspective previously not thoroughly examined by academics in the field of corporate governance.