Corporate Governance Indices and Firms' Market Values: Time Series Evidence from Russia
Bernard S. Black
Northwestern University - School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)
World Bank - Development Economics Data Group (DECDG)
Center for Economic and Financial Research (CEFIR); New Economic School, Moscow
nearly final version, published in Emerging Markets Review, Vol. 7, pp. 361-379, 2006
McCombs Research Paper No. FIN-05-05
U of Texas Law, Law and Econ Research Paper No. 66
ECGI - Finance Working Paper
There is increasing evidence that broad measures of firm-level corporate governance predict higher share prices. However, almost all prior work relies on cross-sectional data. This work leaves open the possibility that endogeneity or omitted firm-level variables explain the observed correlations. We address the second possibility by offering time-series evidence from Russia for 1999-present, exploiting a number of available governance indices. We find an economically important and statistically strong correlation between governance and market value both in OLS and in fixed effects regressions with firm-index fixed effects. We also find large differences in coefficients and significance levels, including some sign reversals, between OLS and fixed effects specifications. This suggests that cross-sectional results may be unreliable. We also find significant differences in the predictive power of different indices, and in the components of these indices. How one measures governance matters.
This prepublication version is substantively the same as the published version, except that this version includes results for subindices and results with firm-index random effects, which were omitted from the published version due to space constraints.
A Russian translation of this article is available at http://ssrn.com/abstract=1435838
Number of Pages in PDF File: 35
Keywords: Russia, corporate governance, corporate governance index, law and finance, firm valuation, disclosure, emerging markets
JEL Classification: G32, G34Accepted Paper Series
Date posted: December 5, 2005 ; Last revised: August 2, 2009
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