Methods for Multicountry Studies of Corporate Governance: Evidence from the BRIKT Countries (Expanded Working Paper)
Posted: 16 Dec 2015
Date Written: December 2015
This document is an expanded working paper version of Black, de Carvalho, Khanna, Kim, and Yuroglu, Methods for Multicountry Studies of Corporate Governance: Evidence from the BRIKT Countries (2013), http://ssrn.com/abstract=2219525,which contains details on our governance indices and the five countries we study, and additional results, which were omitted from the main paper for space reasons.
A replication dataset, accompanying codebook, and replication statistical code for the article and the expanded working paper are available at http://ssrn.com/abstract=2503520.
We discuss empirical challenges in multicountry studies of the effect 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 higher 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. 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. Bounds on sensitivity to omitted variable bias suggest that individual country results are often fragile.
Keywords: Brazil, Korea, India, Russia, Turkey, corporate governance, boards of directors, disclosure, shareholder rights, sensitivity bounds
JEL Classification: G18, G30, G34, G39, K22, K29
Suggested Citation: Suggested Citation