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 analyze rights offerings and public offerings in a setting where better informed current shareholders strategically choose to subscribe. When all current shareholders have wealth to participate, rights offerings achieve the full information...Read more
We study shareholder voting in a model in which trading affects the composition of the shareholder base. In this model, trading and voting are complementary, which gives rise to self-fulfilling expectations about proposal acceptance. We show...Read more
This study documents how group trademarks, comprising the business group’s name and logo, can be used for the benefit of controlling families at the expense of outside minority shareholders. Using a sample of business groups in Korea, we find...Read more
Index funds and indexed ETFs managed by the “Big Three” – BlackRock, Vanguard and State Street – have grown to be the largest investors in the capital markets and have become the presumptive “deciders” of corporate law controversies. With this...Read more