Methods for multicountry studies of corporate governance: Evidence from the BRIKT countries

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

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    43 Scopus citations

    Abstract

    We discuss empirical challenges in multicountry studies of the effects of firm-level corporate governance on firm value, focusing on emerging markets. We assess the severe data, "construct validity", and endogeneity issues in these studies, propose methods to respond to those issues, and apply those methods to a study of five major emerging markets-Brazil, India, Korea, Russia, and Turkey. We develop unique time-series datasets on governance in each country. We address construct validity by building countryspecific indices which reflect local norms and institutions. These similar-but-not-identical indices predict firm market value in each country, and when pooled across countries, in firm fixed-effects (FE) and random-effects (RE) regressions. In contrast, a "common index", which uses the same elements in each country, has no predictive power in FE regressions. For the country-specific and pooled indices, FE and RE coefficients on governance are generally lower than in pooled OLS regressions, and coefficients with extensive covariates are generally lower than with limited covariates. These results confirm the value of using FE or RE with extensive covariates to reduce omitted variable bias. We develop lower bounds on our estimates which reflect potential remaining omitted variable bias.

    Original languageEnglish (US)
    Pages (from-to)230-240
    Number of pages11
    JournalJournal of Econometrics
    Volume183
    Issue number2
    DOIs
    StatePublished - 2014

    Keywords

    • Boards of directors
    • Brazil
    • Corporate governance
    • Disclosure
    • India
    • Korea
    • Russia
    • Sensitivity bounds
    • Shareholder rights
    • Turkey

    ASJC Scopus subject areas

    • Economics and Econometrics

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