Methods for Multicountry Studies of Corporate Governance (and Evidence from the BRIKT Countries)

27 Pages Posted: 23 Mar 2013 Last revised: 3 Mar 2016

Bernard S. Black

Northwestern University - Pritzker School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)

Antonio Gledson De Carvalho

Fundacao Getulio Vargas School of Business at Sao Paulo

Vikramaditya S. Khanna

University of Michigan Law School

Woochan Kim

Korea University Business School; European Corporate Governance Institute (ECGI); Asia Corporate Governance Institute (AICG)

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management

Date Written: June 1, 2014

Abstract

We discuss empirical challenges in multicountry studies of the effects of firm-level corporate governance on firm value, focusing on emerging markets. We assess the severe data, “construct validity,” and endogeneity issues in these studies, propose methods to respond to those issues, and apply those methods to a study of five major emerging markets -- Brazil, India, Korea, Russia, and Turkey. We develop unique time-series datasets on governance in each country. We address construct validity by building country-specific indices which reflect local norms and institutions. These similar-but-not-identical indices predict firm market value in each country, and when pooled across countries in firm fixed-effects (FE) and random-effects (RE) regressions. In contrast, a “common index” that uses the same elements in each country, has no predictive power in FE regressions. For the country-specific and pooled indices, FE and RE coefficients on governance are generally lower than in pooled OLS regressions, and coefficients with extensive covariates are generally lower than with limited covariates. These results confirm the value of using FE or RE with extensive covariates to reduce omitted variable bias. We develop lower bounds on our estimates which reflect potential omitted variable bias.

An expanded working paper version of this paper is available at http://ssrn.com/abstract=2359126, contains details on our governance indices and the five countries we study, and additional results, which were omitted from this paper for space reasons.

A replication dataset, accompanying codebook, and replication statistical code for this article and the expanded working paper are available at http://ssrn.com/abstract=2503520

Keywords: Brazil, Korea, India, Russia, Turkey, corporate governance, boards of directors, disclosure, shareholder rights

JEL Classification: G18, G30, G34, G39, K22, K29

Suggested Citation

Black, Bernard S. and De Carvalho, Antonio Gledson and Khanna, Vikramaditya S. and Kim, Woochan and Yurtoglu, B. Burcin, Methods for Multicountry Studies of Corporate Governance (and Evidence from the BRIKT Countries) (June 1, 2014). nearly final version, published in Journal of Econometrics, Vol. 183, pages 230-240, 2014; 26th Australasian Finance and Banking Conference 2013; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 414/2014 ; U of Michigan Law & Econ Research Paper No. 13-005; Northwestern Law & Econ Research Paper No. 13-05. Available at SSRN: https://ssrn.com/abstract=2219525 or http://dx.doi.org/10.2139/ssrn.2219525

Bernard S. Black (Contact Author)

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
312-503-2784 (Phone)

Northwestern University - Kellogg School of Management

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-5049 (Phone)

European Corporate Governance Institute (ECGI)

Brussels
Belgium

Antonio Gledson De Carvalho

Fundacao Getulio Vargas School of Business at Sao Paulo ( email )

R. Itapeva, 474 - 7o. andar
Sao Paulo 01313-902
Brazil
+5511 3281-7767 (Phone)

Vikramaditya S. Khanna

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-615-6959 (Phone)

Woochan Kim

Korea University Business School ( email )

LG-POSCO Bldg #524
Anam-Dong, Seongbuk-Ku
Seoul, Seoul 136701
+822-3290-2816 (Phone)
+822-922-7220 (Fax)

HOME PAGE: http://biz.korea.ac.kr/professor/wckim

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asia Corporate Governance Institute (AICG) ( email )

1, 5-ga, Anam-dong
Sungbuk-gu
Seoul, 136-701
Korea, Republic of (South Korea)

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management ( email )

Chair of Corporate Finance
Burgplatz 2
Vallendar, 56179
Germany
+49 261 6509-721 (Phone)
+49 261 6509-729 (Fax)

HOME PAGE: http://www.whu.edu/forschung/fakultaet/finance-group/corporate-finance/

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