Abstract
While the existing literature suggests that CG reforms tend to boost firm performance, in the context of Russia the present paper argues that the beneficial effect of any CG reform may be outweighed by the possible adverse effects arising from the conflict between the state (as tax collector) and the controlling owner and/or that between the central and local governments in a decentralized set-up. Using introduction of the CG reform as a natural experiment, we compare the estimates of market (e.g., Tobin’s Q) and accounting (e.g., EBIT share) based measures of performance to identify the causal effect of the reform on firm performance in a sample of firm-level panel data from Russia. We argue that the negative effect of the reform is likely to be more pronounced in the accounting based measure of performance which can be subject to manipulation. First, greater Transparency and Disclosure is associated with significantly higher Tobin’s Q, but not EBIT share. Further analysis exploits the variation in both measures of firm performance between domestic and foreign listed Russian firms before and after the introduction of CG reform and suggests that the reforms failed to spur any significant improvement in the market based performance measure, while it is associated with significantly lower EBIT-share among domestic listed Russian firms. We argue that the differential impact of the reform on EBIT share provides support to our central hypothesis.