TY - JOUR
T1 - Corporate governance indices and firms' market values
T2 - Time series evidence from Russia
AU - Black, Bernard S.
AU - Love, Inessa
AU - Rachinsky, Andrei
N1 - Funding Information:
We thank the World Bank for the financial support. We thank Woochan Kim, Kate Litvak, Sheridan Titman, and participants at McCombs School of Business, University of Texas, and Workshop on Financial Markets Development in Central and Eastern European Countries for comments, and Edward Al-Hussainy, Rei Odawara and Feng Lui for excellent research assistance.
Copyright:
Copyright 2006 Elsevier B.V., All rights reserved.
PY - 2006/12
Y1 - 2006/12
N2 - 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. How one measures governance matters.
AB - 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. How one measures governance matters.
KW - Corporate governance
KW - Corporate governance index
KW - Emerging markets
KW - Firm valuation
KW - Law and finance
KW - Russia
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U2 - 10.1016/j.ememar.2006.09.004
DO - 10.1016/j.ememar.2006.09.004
M3 - Article
AN - SCOPUS:33751396668
SN - 1566-0141
VL - 7
SP - 361
EP - 379
JO - Emerging Markets Review
JF - Emerging Markets Review
IS - 4
ER -