Predicting Corporate Governance in Emerging Markets
48 Pages Posted: 22 Dec 2009 Last revised: 9 Aug 2011
Date Written: July 7, 2011
This paper investigates what predicts corporate governance in emerging markets. Specifically, we examine what predicts governance changes and the level of governance itself. To conduct this study, we utilize a unique data set from AllianceBernstein that consists of monthly firm-level corporate governance ratings for 24 emerging market countries for almost seven years. Since the AllianceBernstein ratings are time-series data, they allow us to determine the direction of changes in a firm’s corporate governance, and when these changes take place. Using these data, we find five main results. First, there is a positive and significant relationship between firm growth and changes in firm governance. Second, the level of political risk where the firm resides is positively and significantly related to changes in firm governance. Hence, firms that reside in countries with high political risk are likely to improve their governance. Third, we find that the introduction of American Depository Receipt (ADR) is positively and marginally significantly related to changes in governance. Fourth, the level of political risk where the country resides is negatively and significantly related to the level of firm governance. As a result, firms located in countries with lower political risk tend to have better levels of governance. Fifth, we find that changes or levels in firm valuation do not predict changes in firm governance.
Keywords: Emerging Markets, Corporate Governance, Prediction
JEL Classification: G30
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