Predicting Corporate Governance Ratings
32 Pages Posted: 2 Jan 2014 Last revised: 9 Jan 2014
Date Written: January 3, 2014
In this paper we use six governance variables to predict the ISS’s indexes values. Using a sample of 392 UK companies, the results indicate that governance variables can predict the ISS’s governance rates with a higher degree of accuracy and significance. This suggests that corporate governance indexes actually measure what they claim to measure: corporate governance. Moreover, these results suggest that corporate governance indexes’ values are predictable in an out of sample context. So, those wishing to invest in companies with “good” corporate governance can do so by using our ordered probit model applied on observable proxies for corporate governance.
Keywords: Corporate Governance, ISS’s Ratings, Board Independence, CEO Compensation, Ownership Structure and Large Creditors
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