Table 3 shows the correlation coefficients between Tobin’s Q and the six governance
mechanisms we use in our system estimations. Of special interest, and consistent
with our general notion, is the positive and statistically significant correlation coefficient
of 0.24 between our corporate governance index, CGI, and Tobin’s Q. Blockout
and Bsize are also positively correlated with Tobin’s Q. In contrast, Lshare, LV, and
Outsider are all negatively correlated with Q. Finally, it is important to note that CGI
is based on the recommendations and suggestions of the Swiss Code of Best Practice
and incorporates a broad range of soft corporate governance issues. Hence, the index
is not directly related to the additional governance mechanisms. Nevertheless, there
are minor overlaps that cannot be avoided. For example, one question in the survey
refers to the one share-one vote principle (see question 6 in the appendix), which
affects Lshare as well as Blockout and is also captured by the dummy variable Scat.
After experimenting with the construction of the index and the specification of the
system of equations, we are confident that these overlaps do not cause major problems.
First, we estimate the system of equations excluding Scat, and the results
remain unchanged (see section 4.4). Second, in results not reported here we extend