Predicting Corporate Governance in Emerging Markets

48 Pages Posted: 22 Dec 2009 Last revised: 9 Aug 2011

See all articles by Marcus V. Braga-Alves

Marcus V. Braga-Alves

Pace University

Matthew R. Morey

Pace University - Lubin School of Business - Department of Finance and Economics

Date Written: July 7, 2011

Abstract

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

Suggested Citation

Braga-Alves, Marcus V. and Morey, Matthew R., Predicting Corporate Governance in Emerging Markets (July 7, 2011). Available at SSRN: https://ssrn.com/abstract=1527123 or http://dx.doi.org/10.2139/ssrn.1527123

Marcus V. Braga-Alves

Pace University ( email )

Lubin School of Business
New York, NY 10038
United States
4143937270 (Phone)

Matthew R. Morey (Contact Author)

Pace University - Lubin School of Business - Department of Finance and Economics ( email )

One Pace Plaza
New York, NY 10038-1502
United States
212-618-6471 (Phone)

HOME PAGE: http://webpage.pace.edu/mmorey/

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