Evaluating Governance Quality towards Achieving a Sustainable Financial Market: A Static Linear Panel Data Approach

Norasyikin Abdullah Fahami; Mohd Faizal Basri

This study evaluates the relationship between governance indicators and stock market performance in ASEAN-5 countries. Good governance quality is crucial for instilling investors’ confidence and influencing the performance of stock markets. Six governance indicators from the World Governance database - control of corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice and accountability, were regressed against annual stock returns. Using a static linear panel data approach over ten years of study, the Pooled OLS model was identified as the most appropriate. Our findings indicate that only the rule of law significantly impacts stock market performance in the ASEAN-5 region. This suggests an effective legal system is important in boosting investor confidence and market stability. Furthermore, a strong legal framework is crucial for sustainable business conduct, which positively affects financial market performance. Investors and portfolio managers can benefit from this research by prioritising investment in countries with good governance quality to achieve higher capital gains. This research also offers valuable insights for policymakers to strengthen any laws and legal framework, adopt governance best practices, and ensure compliance with governance standards.

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Fahami, N. A., & Basri1, M. F. (2024). Evaluating Governance Quality towards Achieving a Sustainable Financial Market: A Static Linear Panel Data Approach. International Journal of Academic Research in Accounting, Finance and Management Sciences, 14(4), 133–149.

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Evaluating Governance Quality towards Achieving a Sustainable Financial Market: A Static Linear Panel Data Approach

Norasyikin Abdullah Fahami, Mohd Faizal Basri

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