Corporate governance indices and construct validity

Bernard Black*, Antonio Gledson de Carvalho, Vikramaditya Khanna, Woochan Kim, Burcin Yurtoglu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

54 Scopus citations


Manuscript Type: Conceptual and empirical. Research Question/Issue: Many studies of firm-level corporate governance rely on aggregate “indices” to measure underlying, unobserved governance. But we are not confident that we know how to build these indices. Often we are unsure both as to what is “good” governance, and how one can proxy for this vague concept using observable measures. We conduct an exploratory analysis of how researchers can address the “construct validity” of firm-level governance indices, which poses a major challenge to all studies that rely on these indices. Research Findings/Insights: We assess the construct validity of governance indices for four major emerging markets (Brazil, India, Korea, and Turkey), developed in prior work. In that work, we built country-specific indices, using country-specific governance elements that reflect local norms, institutions, and data availability, and showed that these indices predict firm market value in each country. The use of country-specific indices puts great stress on the construct validity challenge of assessing how well a governance measure matches the underlying concept. We address here how well these four country-specific indices, and subindices for aspects of governance such as board structure or disclosure, coherently measure unobserved, underlying actual governance. Theoretical/Academic Implications: We provide guidance on how researchers can address the construct validity of corporate governance indices. Practitioner/Policy Implications: The uncertain construct validity of most corporate governance indices suggests caution in relying on research using these indices as a basis for firm-level governance changes, or country-level legal reforms.

Original languageEnglish (US)
Pages (from-to)397-410
Number of pages14
JournalCorporate Governance: An International Review
Issue number6
StatePublished - Nov 2017


  • Corporate Governance indices
  • boards of directors
  • construct validity
  • disclosure
  • ownership structure
  • shareholder rights

ASJC Scopus subject areas

  • General Business, Management and Accounting
  • Strategy and Management
  • Management of Technology and Innovation


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