Effect of the Application of Internal Corporate Governance Mechanisms on the Value of Companies With Diversification and Focusing Strategies

Abstract

The perspective of corporate governance in Russia is a topical issue nowadays. It is caused by the fact that the Russian business conditions demand special approach to formation of an optimum corporate governance system.

The purpose of the study is to assess the impact of individual components of corporate governance on the value of companies with two development strategies: diversification and focusing. The main hypothesis considered in the work is that, depending on the chosen development strategy (diversification or focus), different corporate governance mechanisms have a different impact on the value of these companies. To substantiate the hypothesis put forward, a regression model of the influence of the main factors of corporate governance on the economic value added indicator (EVA) has been constructed.

As a result of the conducted research for companies using diversification and focusing strategies, the influence of such corporate governance factors as the share of independent directors on the board, the share of shares owned by the company’s management, and the state’s participation in the share capital of the company was revealed. Based on the results of the regression model constructed for the sample, we can draw the following conclusions: depending on the chosen development strategy, a different structure of corporate governance is traced, in particular, for diversified companies a more independent board of directors is characteristic, as well as greater state participation in the share capital the company. In the context of a variety of diversification strategies, the focus is on only two strategies. In prospective studies, it is supposed to consider the influence of other factors of corporate governance (for example, corporate debt, dividend payment form) on companies with related and unrelated diversification strategies.

Compared to the existing research, a comprehensive study of the influence of such corporate governance factors as the share of independent directors on the board, the share of shares owned by the company’s management, and state participation in the company's share capital on the results of Russian companies implementing diversification and focusing strategies, made practice-oriented conclusions.

The results of the study can be useful for managers and managers of corporate structures in order to assess the effectiveness and efficiency of the existing management system in the company.