Does corporate governance matters to financial markets

There is a general consensus among economists that capital market development increases the corporate governance standards. The corporate governance can play important role in improving firms’ access to capital and in attracting global portfolio equity. Not less important, empirical studies indicate that corporate governance improve firms evaluation and their performance. All of these mechanisms and effects of better corporate governance have positive impact and promote capital market development.The main aim of the study is to investigate does corporate governance matters to capital markets for the sample of 38 European economies in the period 2006-2014.Our paper contributes to the literature in a way that it applies more appropriate panel technique (System Generalized Method of Moments) to investigate the relationship between corporate governance and stock market development in European economies (developed EU, New EU members and non-EU countries). The paper uses several new macroeconomic and financial specific determinants (foreign direct investment, stock price volatility, and banking sector development) as controlling variables.