Methods for Multicountry Studies of Corporate Governance (and Evidence from the BRIKT Countries)
Bernard S. Black
Northwestern University - School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)
Antonio Gledson De Carvalho
Fundacao Getulio Vargas School of Business at Sao Paulo
Vikramaditya S. Khanna
University of Michigan Law School
Korea University Business School; European Corporate Governance Institute (ECGI); Asia Corporate Governance Institute (AICG)
B. Burcin Yurtoglu
WHU - Otto Beisheim School of Management
March 1, 2013
European Corporate Governance Institute (ECGI) - Finance Working Paper No. 414/2014
Northwestern Law & Econ Research Paper No. 13-05
26th Australasian Finance and Banking Conference 2013
U of Michigan Law & Econ Research Paper No. 13-005
We discuss the perils in multicountry studies of corporate governance (CG), focusing on emerging markets. The existing studies are massively multicountry studies, which cover many firms across many countries, but rely on the same limited governance elements in each countries, have few firm-level control variables, and use pure-cross-sectional data. This paper discusses the severe data and construct validity issues in these studies, proposes methods to respond to those issues, and applies those methods through a study of five major emerging markets (Brazil, India, Korea, Russia, and Turkey). We develop unique time-series datasets on governance in each country. We address construct validity by building country-specific indices which reflect local norms and institutions. These similar-but-not-identical indices predict higher firm market value, both in each country and when pooled across countries. In contrast, a “common index” that uses the same elements in each country, has no predictive power. Firm fixed effects results differ substantially from cross-sectional or pooled OLS, and firm random effects. Results are also sensitive to choice of control variables (strongly so with the weaker cross-sectional and pooled OLS specifications), and to the functional form for the dependent variable and how one addresses outliers.
An expanded working paper version of this paper is available at http://ssrn.com/abstract=23591265, contains details on our governance indices and the five countries we study, and additional results, which were omitted from this paper for space reasons.
Number of Pages in PDF File: 33
Keywords: Brazil, Korea, India, Russia, Turkey, corporate governance, boards of directors, disclosure, shareholder rights
JEL Classification: G18, G30, G34, G39, K22, K29working papers series
Date posted: March 23, 2013 ; Last revised: March 20, 2014
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