A Study on Corporate Governance, Risk, and Diversification as Determinants of Firm Value under Restriction of Macroeconomic Variables

Using Korean KRX data, we examine if fundamentals, governance variables, and business structure act as determinants of firm value, even under restriction of macro-economic variables: interest, business cycle, stock market condition, and market risk. We document that fundamentals and governance variables do play as determinants of firm value even after they are controled for. Business structure, however, does not show any significant role. Interest rate (positively), business cycle (mostly negatively), and stock market condition (mostly negatively) do affect firm value. Market risk, however, seems not to play a significant role in most circumstances. Further, our tests by means of cross-product terms show that contributions of fundamentals and governance variables are positively or negatively fortified by macro-economic variables. The role of business structure, however, is not so clearly shown. In the mean time, we need more cautious conclusion here by considering that the effect of ownership concentration on firm value is not linear: with negative effect in linear term and positive effect in squared term.