Governance and Profitability Around the World

Abstract

The purpose of this paper is to examine the effect of governance environments upon aggregate dividend yield and earnings per share for developed and emerging stock markets over the time period January 1995 to December 2002. Using an augmented version of the dividend growth model and allowing for the control of risk factors, we find that governance environments have a significant influence upon dividend yield and earnings per share. The results have policy implications for government policy setters as improvements to governance environments may induce portfolio equity inflow, which is increasingly being seen as a driving force for economic growth.