POSSIBLE IMPACT OF CORPORATE GOVERNANCE PROFILEON A RUSSIAN BANK VALUATION

This paper aims at explaining the differences in valuation of banking firms in Russia through theimpact of selected elements of corporate governance. We rely upon value-based managementtheory to test the hypothesis that expenses on corporate governance system create shareholdervalue. The price at which share stakes are acquired by strategic foreign investors is for us a criterionof market-proven value, so we use the standard valuation tool, i.e. price-to-book-value of equity(P/BV) multiple, as the dependent variable. The set of corporate governance parameters whosemateriality for a would-be external investor we would like to test includes: the degree ofconcentration of ownership and control; maturity of corporate governing bodies; degree of Boardindependence; qualification of external auditors; stability of governing bodies (Management Boardand Board of Directors); and availability of external credit ratings from the world’s leading ratingagencies. We test our approach on a sample of acquisition deals and public offerings over the period2004-2008 that we develop for the first time. Firstly, we find out which factors are statisticallysignificant and relevant to a bank’s selling price. Secondly, a least squares multiple linear regressionmodel is devised to check how each individual variable impacts the dependent variable. Wediscover that external investors attach value to high concentration of ownership, external creditrating coverage, stability of the Board of Directors, and involvement of well-established externalauditors. Investors of a strategic nature tend to pay a higher acquisition premium. Independence ofthe Board of Directors might be perceived by external strategic investors as a disadvantage andmight destroy shareholder value.....