An Interval Variables Approach to Address Measurement Uncertainty in Governance Indicators
University of Verona - Department of Economics Working Paper No. 2/2018
22 Pages Posted: 14 Feb 2018
Date Written: February 2, 2018
Abstract
Many variables in governance are measured with uncertainty. This paper addresses this problem, showing that interval variables are a suitable way to handle it, providing an application in corporate governance. We build two constructs, one for Investor protection and the other for Constraints on shareholders based on the original dataset by La Porta et al. (1998) and we find that for very low levels of investor protection, constraints are a suitable way to provide some form of safeguard. We also provide evidence for the theoretical claim that investor protection and constraints on shareholders work as substitutes under specific circumstances.
Keywords: Corporate Governance, Measurement, Interval Data, Latent Variables
JEL Classification: C34
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