Abstract

The purpose of this study was to investigate the relationship of corporate governance with accounting quality, firm performance, and firm value by controlling such endogenous issues that might exist in such relationship. Some studies suggested that endogeneity might be present in the relationship of corporate governance with firm performance and firm value. However, most empirical studies which investigated the relationship of corporate governance with accounting quality and firm value did not consider endogenous relationship of variables. In fact, bias is likely to occur in estimate if analysis is performed by using OLS model without considering endogenous relationship that might exist among those variables. This study was intended to validate whether corporate governance would have a significant effect on accounting quality and firm value. The results of this study were as follows. Based on the results of OLS analysis without controlling endogeneity, corporate governance did not have any significant influence on accounting quality. Meanwhile, the results of analysis which investigated firm value as dependent variable showed that the coefficient of corporate governance had a significant positive coefficient. In this study, we used 2SLS model applying 2－step regression analysis including instruments variable in order to control endogeneity of corporate governance. The results of analysis on 2SLS were consistent with those of OLS analysis in overall. However, 2SLS coefficient was found to have greater significance. This study presented an empirical finding that corporate governance would have a significant influence on accounting quality and firm value even when endogeneity with accounting quality, firm value, and corporate governance was controlled. This results of this study highlight the importance of corporate governance and suggest the need to strengthen corporate governance.

Keywords

• Corporate Governance
• Accounting Quality
• Firm Value
• Endogeneity

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