Which Aspects of Corporate Governance Matter in Emerging Markets: Evidence from Brazil, India, Korea, and Turkey
73 Pages Posted: 2 May 2015 Last revised: 18 Aug 2018
Date Written: August 5, 2018
There is evidence that some “corporate governance indices” predict higher firm values in emerging markets, but little evidence on which specific aspects of governance drive that overall relationship. We study that question across four major emerging markets (Brazil, India, Korea, and Turkey). We build overall country-specific governance indices, comprised of indices for disclosure, board structure, ownership structure, shareholder rights, board procedure, and control of related party transactions. We find that disclosure (especially financial disclosure) predicts higher market value across all four countries. Board structure (principally board independence) takes a positive coefficient in all countries and is significant in Brazil and Korea. The Disclosure Index, and a combined Disclosure-Board Structure Index, remain significant in lower bounds analyses. The other indices do not predict firm value. These results provide evidence that: (i) country-specific indices can outperform broad, one-size-fits-all indices, and (ii) firms, in responding to investor pressure for better governance; and investors, in assessing governance, would do well to focus on disclosure and board structure.
Keywords: Brazil, Korea, India, Turkey, corporate governance, boards of directors, disclosure, shareholder rights
JEL Classification: G18, G30, G34, G39, K22, K29
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