Corporate governance indices and firms' market values: Time series evidence from Russia

Bernard S. Black*, Inessa Love, Andrei Rachinsky

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

153 Scopus citations

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. How one measures governance matters.

Original languageEnglish (US)
Pages (from-to)361-379
Number of pages19
JournalEmerging Markets Review
Volume7
Issue number4
DOIs
StatePublished - Dec 2006

Funding

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.

Keywords

  • Corporate governance
  • Corporate governance index
  • Emerging markets
  • Firm valuation
  • Law and finance
  • Russia

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics

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