**4. Discussion**

The objective of this article was to provide an empirical verification of the relationship between corporate governance compliance and company value. With the application of the framework offered by agency theory (Jensen and Meckling 1976; Fama and Jensen 1983), the study tests the main assumption that greater compliance has a positive effect on the market valuation of complying companies. Codes of corporate governance best practice are based on fundamental principles of justice, fairness, and equality (Zattoni and Cuomo 2008) and recommend conformity with a set of provisions of board work, practices of executive compensation, policies of risk management, and standards of transparency (Aguilera et al. 2015). Along with the criticism of a one-size-fits-all approach with national adjustments, codes of best practice reveal conditions in which participants of a community reach a mutual understanding. The concept of flexibility and a voluntary approach to codes of best practice provide space for a dialog to reach consent, in which certain norms and behavior are seen as right or wrong. According to the comply-or-explain rule (Tan 2018), companies are obliged to report

their scope of conformity, which facilitates understanding of both the determinants and performance effects of compliance.

Prior studies indicate the positive effect of compliance related to enhanced investor trust, lower capital cost, and reduced information asymmetry, and they reveal a positive relation between corporate governance conformity and company performance and value (Mazotta and Veltri 2014; Rose 2016; Kaspereit et al. 2017). However, some researchers argue that the impact of corporate governance codes and compliance may be limited in different institutional settings, in particular in the context of concentrated ownership, insufficient investor protection, and emerging governance (Sobhan 2016; Okhmatovskiy 2017). The main focus of corporate governance codes is devoted to solving principal–agent conflicts between shareholders and managers, rather than giving sufficient attention to principal–principal conflicts between majority and minority shareholders (Chen et al. 2011). Thus, in countries of concentrated ownership and emerging governance, the code provisions and compliance with best practice may not result in a higher performance effect (Gherghina 2015) or may even be detrimental to company value (when regarded merely as an extra cost) or fail to elicit investor trust.

We tested the hypotheses of the relationship between compliance and company value compliance, using a unique sample of conformity with board best practice by 155 companies listed on the Warsaw Stock Exchange over a 10-year period. Specifically, we assume that formal compliance with board best practice is negatively associated with firm value (H1) and a that minimum compliance with board best practice is negatively associated with firm value (H2). We hypothesize that investors do not appreciate substantive compliance either and that conformity with board best practice is negatively associated with firm value (H3).

The results of the panel analysis provide support for hypotheses H1 and H2, showing a negative association between formal compliance and firm value and minimum compliance and firm value. In line with our assumption in H3, we obtain partial support for the negative association between substantive compliance and Q. The negative correlation between company value and compliance remains statistically significant for the general measure of substantive compliance (SUBSTCOMPL) and statistically insignificant for decomposed substantive compliance (dec\_SUBSTCOMPL), for which we exclude the variable on independent directors (INDNED). We interpret these findings as evidence for a mismatch between code provisions and corporate governance challenges, relating to concentrated ownership and principal–principal conflicts (Chen et al. 2011). Consistent with findings by Bhagat and Black (2002), we do not observe a positive market valuation effect for complying companies. Investors appear not to find compliance with board best practice a convincing solution to possible tensions between majority and minority shareholders (Healy and Palepu 2001; Goncharov et al. 2006), questioning the efficient implementation of board guidelines (Martin 2010).
