Quality of governance and bank valuation in Russia: An empirical study

This paper aims at explaining the differences in valuation of banking firms in Russia from a quality of governance point of view. A sample of acquisition deals and public offerings over the last 5 years is collected with the view of discovering factors that investors deem significant in making a decision whether to invest in a given banking firm and, if so, at what price. We use price-to-book-value of equity (P/BV) multiple as standard measurement of valuation and the dependent variable. As for explanatory variables, we put together a set of proxies for quality of bank governance and management, such as degree of concentration of control, managerial experience, degree of compliance with corporate governance best practices (e.g. degree of Board independence, qualification of external auditors), stability of bank’s governing bodies (Management Board and Board of Directors), and availability of external credit ratings. We find out which factors are statistically significant and relevant. A least squares multiple linear regression model is devised to check how individual variables explain the differences in valuation. We discover that external investors attach value to high concentration of ownership, sheer size of the bank, stability of the governing bodies, involvement of well-established external auditors and also that strategic investors tend to pay higher acquisition premiums. The features of the Board of Directors such as its independence, maturity and stability appear to create less value if any.