Corporate Governance and Firm Value in Frontier Markets: Evidence from Mongolia

This study investigates the relationship between corporate governance and firm value in frontier markets, with a specific focus on Mongolia. It leverages the comprehensive 2022 reform of Mongolia’s Corporate Governance Code, which mandated the public disclosure and scoring of corporate governance practices for listed firms. Using panel data from companies listed on the Mongolian Stock Exchange during 2022 and 2023, the analysis examines how both the disclosure of governance scores and the levels of those scores are associated with firm valuation, as measured by Tobin’s Q. The empirical findings indicate a negative association between firm value and both the disclosure of corporate governance scores and higher levels of these scores. Further decomposition into specific governance dimensions—including board structure, reporting transparency, audit mechanisms, risk management, executive compensation, stakeholder engagement, corporate culture, and shareholder rights—consistently reveals negative associations with firm value. These results imply that corporate governance disclosures and higher governance scores are perceived by investors in frontier markets such as Mongolia as regulatory compliance burdens rather than credible indicators of enhanced governance or value creation. Consequently, the perceived costs of compliance appear to outweigh their potential informational benefits, leading to lower market valuations. This study contributes to the literature by highlighting that the relationship between corporate governance and firm value is highly context-dependent. In frontier markets characterized by weak institutional frameworks, limited investor protections, and low regulatory enforcement, formal governance practices may initially produce adverse market perceptions. These insights underscore the necessity of aligning governance reforms more closely with local institutional realities and substantively enhancing governance practices beyond mere compliance.