Have the objectives of the ASX recommendations on good corporate governance been achieved?

This study investigates the associations between an independent summary measure of corporate governance quality, and company valuation and operating performance, before and after the introduction of the Australian Stock Exchange’s Principles of Good Corporate Governance and Best Practice Recommendations in 2003, for 91 of the largest Australian companies. The corporate governance rankings provided by the Horwath Report are used as the measure of overall corporate governance quality. Changes in rankings are positively associated with changes in both valuation and operating performance between 2000/1 and 2003/4. Specifically, increases in rankings are associated with higher valuation, and decreases in rankings are associated with lower performance. This suggests that with respect to their relative corporate governance quality and/or their disclosure of same, or both, companies whose value improves also move up in their ranking, and companies whose operating performance declines also move down in their ranking. In addition to its role in addressing agency problems, this paper argues that corporate governance disclosure also can be a legitimising strategy.