There is evidence that some “corporate governance indices” predict higher firm values in emerging markets, but little evidence on which specific aspects of governance drive that overall relationship. We study that question across four major emerging markets (Brazil, India, Korea, and Turkey). We build overall country-specific governance indices, comprised of indices for disclosure, board structure, ownership structure, shareholder rights, board procedure, and control of related party transactions. We find that disclosure (especially financial disclosure) predicts higher market value across all four countries. Board structure (principally board independence) takes a positive coefficient in all countries and is significant in Brazil and Korea. The Disclosure Index, and a combined Disclosure-Board Structure Index, remain significant in lower bounds analyses. The other indices do not predict firm value. Unlike our country-specific indices, the best available multicountry index, from Thomson Reuters (successor to Asset4) does not cover disclosure and does not predict firm value. These results provide evidence that: (i) country-specific indices can outperform broad, one-size-fits-all indices, and (ii) firms, in responding to investor pressure for better governance; and investors, in assessing governance, would do well to focus on disclosure and board structure.
Assistant Professor of Law
NYU Law School
Nicholas J. Chabraja Professor
Northwestern University School of Law and Kellogg School of Management