Does Corporate Governance Matter? A Crude Test Using Russian Data

20 Pages Posted: 26 Jan 2001


Does a firm's corporate governance behavior affect its market value? In most empirical tests in developed countries, firm-specific corporate governance actions have little or no effect on market value. These weak results could reflect limited variation among firms in governance practices.

In contrast, the corporate governance practices of Russian firms vary widely, from quite good to awful. I test whether corporate governance behavior affects the market value of Russian firms using (1) fall 1999 corporate governance rankings developed by a Russian investment bank for sixteen Russian public companies and (2) the "value ratio" of actual market capitalization to potential Western market capitalization for these firms, determined independently at the same time by a second Russian investment bank. The correlation between ln(value ratio) and governance ranking is striking and is statistically strong despite the small sample size: Pearson r = 0.90 (p < .0001). A one-standard-deviation improvement in governance ranking predicts an 8-fold increase in firm value; a worst (51 ranking) to best (7 ranking) governance improvement predicts a 600-fold increase in firm value. My results are tentative, due to the small sample size. But they suggest that a firm's corporate governance behavior can have a huge effect on its market value in a country where other constraints on corporate behavior are weak.

For an updated and somewhat more technical version of this Article, using an expanded 21 firm sample, see Bernard Black, "The Corporate Governance Behavior and Market Value of Russian Firms", Emerging Markets Review, Vol. 2, pp. 89-108 (2001), nearly final version available at

Suggested Citation

Black, Bernard S., Does Corporate Governance Matter? A Crude Test Using Russian Data. Available at SSRN: or

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)


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