We conduct an exploratory analysis of how researchers can address the issue of ?construct validity?, which poses a major challenge to all studies of the effect of corporate governance on firm performance. Many corporate governance studies rely on aggregate governance ?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. These are construct validity questions. As the basis for analysis, we begin with our prior work, in which we build governance indices in four major emerging markets (Brazil, India, Korea, and Turkey). In that work, we argue that one must build country-specific indices, which use country-specific elements that reflect local norms, local institutions, and local data availability. We show that these similar-but-not-identical indices predict firm market value in each country and when pooled across countries, in firm fixed-effects (FE) regressions with extensive covariates. This approach puts great stress on the construct validity challenge of assessing how well a governance measure matches the underlying concept. We address here what can be said about how well these four country-specific indices, and subindices for aspects of governance such as board structure or disclosure, measure unobserved, underlying actual governance quality.
We investigate the impact on firms of joining the S&P 500 index from 1997 to 2017. We find that the positive announcement effect on the stock price of index inclusion has disappeared and the long-run impact of index inclusion has become...Read more
One of the central problems of shareholder stewardship around the world is rendering institutional investors good monitors of their investee companies and improving their accountability to both companies and their own beneficiaries and clients....Read more
This study investigates whether and how firms’ stakeholder orientation affects their inventory efficiency as well as financial performance. Using U.S. state legislatures’ staggered adoption of constituency statutes over a 24-year period (1984–...Read more
Shareholder inspection rights allow a shareholder to access the relevant documents of the company in which they hold an interest, so as to address the problem of information asymmetry and reduce the agency costs inherent in the corporate...Read more