Investability, corporate governance and firm value

In this paper, I show that “investable premia” are greatest for transparent, well-governed firms. I find that single-class share investable firms and better-governed firms reap the largest valuation gains from becoming investable. Dual-class share firms do gain from becoming investable, but their gains are much lower than that of single-class share firms. These findings suggest that the failure on the part of firms to remedy agency conflicts prior to becoming investable only serves to greatly reduce, or even nullify their “investable premia”.

► I examine how “investable premia” vary by level of corporate governance.
► Corporate governance measured using a single/dual-class share binary variable and agency cost proxies.
► Single-class share firms experience larger “investable premia” than do dual-class firms.
► Firms with low agency costs enjoy the largest “investable premia”.