Corporate Governance and Performance of French Listed Companies

We analyze the link between corporate governance quality and performance in French listed firms. Using a Carhart four-factor analysis, we show that firms with higher levels of corporate governance quality underperform those with lower levels of quality by an average of 1.5% per year in 2005 – 2007. We capture corporate governance quality by means of index which reflects the specificities of corporate governance in France, in particular the existence of influential networks, whose interests may not necessarily coincide with those of shareholders, in the governance structures of firms. Our findings indicate that investors prefer firms with good connections, probably because they perceive that these firms may benefit from protection in times of need.