Corporate Governance and Its Determinants in Emerging Countries: A Case Study of Bangladesh
45 Pages Posted: 9 Feb 2013 Last revised: 25 Feb 2013
Date Written: February 25, 2013
This paper begins with a summary of the literature on ways of measuring corporate governance ‘quality’. It then considers three related research questions, all in the context of an emerging economy, Bangladesh, where corporate governance has been a major concern. The first question is which firms are the leaders, in the sense that they are the first to update their governance practices? The second question is, what factors best explain changes in firms’ governance practices over time? The third question is what best explains differences in corporate governance practices across firms at a given point in time? Using a self-constructed composite index of governance quality comprising 148 elements, it was found that a subsidiary of a foreign company scored the highest in 11 of the 13 years, suggesting that the need for external equity capital may not be the primary motive for an improvement in firm-level governance in Bangladesh. Four firm-level characteristics, namely firm size, growth opportunities (measured by the book-to-market ratio), volatility and leverage, are significantly associated with changes in governance quality from one year to the next, while stock volatility is not associated with cross-sectional differences in CG quality across firms at a given point of time.
Keywords: Corporate governance, Determinants, Agency Theory, Contingency Approach
JEL Classification: G30, G34, G39
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