Corporate Governance and Performance: An Indexing Approach Using the Stochastic Frontier Analysis

In this paper, we study the association between firms' specific characteristics and performance for a sample of 320 American firms using a governance efficiency index, calculated by the Stochastic Frontier Analysis. The use of a latent classes in the specification of the model, allowed to detect two groups of firms according to their specific characteristics as: the firm size, the leverage, the dividend yield and the return on equity (ROE). The results of affectation equation show that the probability to be in the second group (the most perform) is more important when the firm size, the dividend yield and the ROE are high, while a high leverage level decreases the chance to be in the first group (the less perform).