Corporate Governance Indices and Firms' Market Values: Time Series Evidence from Russia

35 Pages Posted: 5 Dec 2005 Last revised: 2 Aug 2009

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)

Inessa Love

World Bank - Development Economics Data Group (DECDG)

Andrei Rachinsky

Center for Economic and Financial Research (CEFIR); New Economic School, Moscow

Multiple version iconThere are 2 versions of this paper

Date Written: 2006

Abstract

There is increasing evidence that broad measures of firm-level corporate governance predict higher share prices. However, almost all prior work relies on cross-sectional data. This work leaves open the possibility that endogeneity or omitted firm-level variables explain the observed correlations. We address the second possibility by offering time-series evidence from Russia for 1999-present, exploiting a number of available governance indices. We find an economically important and statistically strong correlation between governance and market value both in OLS and in fixed effects regressions with firm-index fixed effects. We also find large differences in coefficients and significance levels, including some sign reversals, between OLS and fixed effects specifications. This suggests that cross-sectional results may be unreliable. We also find significant differences in the predictive power of different indices, and in the components of these indices. How one measures governance matters.

This prepublication version is substantively the same as the published version, except that this version includes results for subindices and results with firm-index random effects, which were omitted from the published version due to space constraints.

A Russian translation of this article is available at http://ssrn.com/abstract=1435838

Keywords: Russia, corporate governance, corporate governance index, law and finance, firm valuation, disclosure, emerging markets

JEL Classification: G32, G34

Suggested Citation

Black, Bernard S. and Love, Inessa and Rachinsky, Andrei, Corporate Governance Indices and Firms' Market Values: Time Series Evidence from Russia (2006). nearly final version, published in Emerging Markets Review, Vol. 7, pp. 361-379, 2006, McCombs Research Paper No. FIN-05-05, U of Texas Law, Law and Econ Research Paper No. 66, ECGI - Finance Working Paper, Available at SSRN: https://ssrn.com/abstract=866988

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)

Brussels
Belgium

Inessa Love

World Bank - Development Economics Data Group (DECDG) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/ilove

Andrei Rachinsky

Center for Economic and Financial Research (CEFIR) ( email )

47 Nakhimovsky Prospect, Office #720
117418 Moscow
Russia

New Economic School, Moscow

100A Novaya Street
Moscow, Skolkovo 143026
Russia

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