Page 7 These findings suggest that corporate governance is strongly determined by country law.

Throughout the empirical analysis we will adjust for country as well as sector eects. Although sector eects seem to be rather small in the corporate governance ratings, we want to ensure that our results are neutral with respect to sector exposures. Besides, our fnancial data, such as stock returns, Tobin's q, Return-on-Equity etc. might also be infuenced by sector eects.

Pg 7 The nancial data we employ in our analysis are commonly used in academic research. We obtained these data from dierent Factset libraries, mainly from Worldscope. Whenever appropriate, we use nancial data in the empirical analysis, which were publicly available at the respective point in time to avoid look-ahead bias.

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Prior to suggesting possible explanations, we will investigate whether the EMU results are biased by country eects.

Pg 14 Overall, our results with respect to the relationship between corporate governance and rm performance in the Eurozone are contrary to our expectations. One possible explanation could be that accounting numbers are biased measures of rm performance. Both of our proxies are based on reported accounting earnings.

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While there are several possible explanations why we cannot nd a relationship between corporate governance and performance in the U.K., the EMU results are puzzling.

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Although we had a limited history of corporate governance ratings available, our results give rst insights regarding the impact of corporate governance in Europe.

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While we found economically large excess returns to a zeroinvestment corporate governance strategy in the U.K., we found no evidence of a relationship between governance and rm valuation. This result indicates that the U.K. market is still adjusting. we didnt not bother to find data supporting UK markets.

Pg 15 In the EMU, the excess returns to a corporate governance strategy were much smaller, particularly after correcting for country eects. Instead, we found a stronger relationship between governance and rm value. This evidence might imply that current corporate governance standards have, to a large extent, already been incorporated in stock prices I am not sure if corporate governance standards have been incorporated in stock prices since I do not have valuable evidence to support it, so I am just guessing.

Pg 15 Although we had a limited history of corporate governance ratings available, our results give first insights regarding the impact of corporate governance in Europewe had no or very less details regarding the history of corporate governance. First insights- It is the first attempt ever in this field.

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We

would like to thank Roderick Molenaar for constructing the factor portfolios and his helpful suggestions throughout the research process Molenaar did the work and gave his findings to us for the whole research that he did.

Moreover, we appreciate Vishal Jadnanansing's help in obtaining the financial data.- Vishal obtained the Financial Data for us.

We appreciate the comments of Mathijs van Dijk, Jeroen Derwall, Christian Kerckhos, and Dariusz Wojcik.- They explained the meaning of everything.

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Although this evidence demonstrates the interest in corporate governance, the important question whether good corporate governance leads to higher stock returns and consequently to higher firm valuations has received limited attention in the academic literature. nobody has ever researched on this subject.