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Which Aspects of Corporate Governance Matter in Emerging Markets: Evidence from Brazil, India, Korea, and Turkey

51 Pages Posted: 2 May 2015 Last revised: 26 Oct 2017

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: April 30, 2015

Abstract

There is evidence that a broad measure of corporate governance predicts higher firm values in emerging markets, but little evidence on which specific aspects of governance drive that overall relationship. We study that question by asking which aspects of corporate governance consistently predict firm market value across four major emerging markets (Brazil, India, Korea, and Turkey), using a unique dataset that lets us build country-specific indices in each country for disclosure, board structure, ownership structure, shareholder rights, board procedure, and control of related party transactions. We find that disclosure predicts higher market value in each country (within disclosure, the principal predictor is financial disclosure); board structure has a positive coefficient in all countries and is significant in Brazil and Korea (within board structure, the principal predictor is board independence); and that once one controls for disclosure and board structure, the other indices do not predict firm value. These results suggest that firms, in responding to investor demands for better governance; and investors, in assessing governance quality, can do reasonably well in focusing on disclosure and board structure. The differences between results without firm effects (pooled OLS) and with firm effects (random or fixed effects) support the need to use panel data and firm effects in corporate governance research.

Appendix is available here: http://ssrn.com/abstract=3058081.

Keywords: Brazil, Korea, India, 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, Which Aspects of Corporate Governance Matter in Emerging Markets: Evidence from Brazil, India, Korea, and Turkey (April 30, 2015). Northwestern Law & Econ Research Paper No. 14-22; ECGI - Finance Working Paper; U of Michigan Law & Econ Research Paper. Available at SSRN: https://ssrn.com/abstract=2601107 or http://dx.doi.org/10.2139/ssrn.2601107

Bernard Black

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 (Contact Author)

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 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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