The Value of Country-Specific Versus Commercial Indices in Emerging Markets

Posted: 16 Aug 2018 Last revised: 25 Sep 2018

See all articles by Bernard S. Black

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); Asian Institute of Corporate Governance (AICG)

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management

Date Written: August 3, 2018

Abstract

An important issue in evaluating corporate governance is how to measure it. In prior work on emerging markets, we have advocated measuring firm-level governance using country-specific indices, tailored to each country’s laws and institutions. An alternate approach, used in commercial indices, is a “common index,” which uses the same elements across all countries, without assessing which elements make sense in which countries. We compare our own country-specific indices for Brazil, India, Korea, and Turkey (BIKT), whose power we have established in prior work, to the best available commercial indices covering emerging markets, from Asset4 and Thomson Reuters. We find that the commercial indices have important limitations in how they are constructed, including vague, subjective definitions of some elements, limited scope for the aspects of governance they cover, and including elements which reflect firm outcomes rather than governance. We further find that the Asset4 and Thomson Reuters indices have no power to predict firm value in a panel data framework with firm fixed effects. One possible reason: we find elsewhere that disclosure (beyond country-mandated minimums) is the governance aspect that most consistently predicts firm market value, yet neither index addresses disclosure.

Keywords: Corporate Governance Indices, Disclosure, Boards of Directors, Shareholder Rights Brazil, Korea, India, Turkey

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, The Value of Country-Specific Versus Commercial Indices in Emerging Markets (August 3, 2018). U of Michigan Law & Econ Research Paper No. 18-020. Available at SSRN: https://ssrn.com/abstract=3225888

Bernard S. 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

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 S. 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

Asian Institute of Corporate Governance (AICG) ( email )

1, 5-ga, Anam-dong
Sungbuk-gu
Seoul, 136-701
Korea, Republic of (South Korea)

B. Burcin Yurtoglu (Contact Author)

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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