The paper investigates the relationship between the internal control system at the company level (one of the crucial elements of corporate governance – CG) and the market valuation of the company (MV/BV). Via the information collected in a unique dataset the paper identifies companies’ governance behavior from the level of information conveyed to market participants through public CG reports.
The data include 12,240 firm observations from 136 Italian listed companies for the years 2012 and 2015.
As a result, two indices are obtained, and they both based on a set of 45 individual CG attributes corresponding to many factors of the self-regulatory code of listed companies.
Our results show a positive and significant association between the internal control system at company level and the company’s assessment according to the market. Overall, non-financial information (such as the CG report issued by listed companies) is taken into consideration by investors as a further factor to appreciate the level of adequacy of their investment choice.