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Andrea Hugill Jordan Siegel
13-055 December 21, 2012
Copyright © 2012 by Andrea Hugill and Jordan Siegel Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author.
Electronic copy available at: http://ssrn.com/abstract=2192460
Which Does More to Determine the Quality of Corporate Governance in Emerging Economies, Firms or Countries?
Andrea Hugill, Harvard Business School Jordan Siegel, Harvard Business School1 First Draft: August 1, 2011 This Version: December 21, 2012
ABSTRACT Scholars of corporate governance have debated the relative importance of country characteristics and firm characteristics in understanding variations in the corporate governance practices of firms in emerging economies. Using panel data and a number of model specifications, we shed new light on this debate. We find that firm characteristics are as important as and often meaningfully more important than country characteristics in explaining governance ratings variance. Our findings show that firms in emerging economies over recent years had more capability to rise above home-country peer firms in corporate governance ratings than has been previously suggested.
Corresponding author can be reached at Morgan Hall, Harvard Business School, Boston, Massachusetts 02163, firstname.lastname@example.org. We thank Chris Poliquin and Chris Allen for research assistance, the CLSA staff for data assistance, as well as the Harvard Business School Division of Research for funding. All remaining errors are our own.
Electronic copy available at: http://ssrn.com/abstract=2192460
I. Introduction Variation in firms' corporate governance is an important topic of debate in the governance literature. One of the main questions is whether weak and/or incomplete public institutions in various countries dictate the governance quality of firms located there. The most recent scholarship on the subject has largely argued that country characteristics strongly predict local firms’ governance (Krishnamurti, Sevic, and Sevic (2006)). Doidge, Karolyi, and Stulz (2007) find that country variables explain 39-73% of governance variance while firms explain only 4-22%. Moreover, they argue that firm characteristics explain almost none of the variation in governance ratings in less-developed countries. However, several other previous papers have argued that various firm characteristics can play an important role in determining the firm’s own governance practices (Klapper, Laeven, and Love (2006), Sawicki (2009)). Durnev and Kim (2005) find three firm-level variables that relate to the governance variation of firms within a country, and show how this relationship is stronger in less investor-friendly countries. In this paper, we offer new understanding of firm and country characteristics’ contribution to corporate governance ratings in emerging economies by using an updated panel data set for the last decade and by including unobservable firm characteristics for comparison. These unobservable firm fixed effects are seen by looking at fixed effects, random effects, and nested ANOVA models. We also capture more observable firm effects by running regressions that use a richer set of firm variables than used in previous papers. Finally, we advance understanding by conducting multiple analyses on emerging economies and developed economies separately. We do those latter analyses in order to explore critical differences between the two types of countries.
Electronic copy available at: http://ssrn.com/abstract=2192460
and Kim (2006) report that higher corporate governance ratings are causally related to higher firm value. Corporate governance fuels growth by providing investors an assurance of a return on their investment (Shleifer and Vishny (1997)). therefore. By providing insight into the important characteristics that can be used to understand firm governance practices in emerging economies. Indeed. Previous literature has sought to understand the negative effect of these incomplete institutions on corporate governance quality.3 Our main focus is on emerging economies. Black. We repose this question with special attention to the additional research question of why some firms establish high quality corporate governance even in economies with very weak and/or incomplete governance institutions. The ratings given by international organizations to firm governance practices should similarly be important to investors looking for useful information about firms. This financing could be critical to growing a firm’s value. . Investors may be more willing to offer valuable financing or pay a higher equity price for firms with better governance (Chen. Jang. Ratings may be especially useful in emerging economies when other signals of firm value may be opaque. Corporate governance should. One of the most fundamental questions being asked by scholars is if the country’s institutions are entirely prescriptive of local firms’ governance practices. this paper seeks to explain how some firms in emerging economies have managed to move independently from their home country institutions in recent years. be especially important in emerging economies where firms are often forced to rely on outside investors to help finance growth opportunities. Much research on corporate governance in the last 15 years has focused primarily on this unique setting. Chen and Wei (2009)). Emerging economies are often characterized by weak governance institutions such as poorly enforced regulatory systems and corruption.
The debate over the relative importance of firm and country characteristics in explaining corporate governance ratings’ variance thus seems unresolved. and Kim (2006)). We improve on previous cross-sectional studies by using a panel of data across multiple years and multiple countries. and fails to account for the nested nature of firm governance ratings.4 Given the clear importance of corporate governance ratings for firms in emerging economies. This original set of firm characteristics includes five observable . Black. recent literature arguing the much greater importance of country characteristics seems unintuitive. each covering years in the range of 2000-2010. which successfully shows that corporate governance measures result in higher firm values (Black. ignores unobservable firm characteristics. Studies that rely on these methods risk that endogeneity or omitted firm-level variables are actually responsible for observed correlations. Looking at the relationship between corporate governance and share price in Russia. We use three corporate governance ratings datasets ranging from 4-11 years. We also improve on previous work by expanding the original set of observable firm characteristics analyzed. This study is motivated by the ongoing debate in the literature. Jang. Love. Black and his coauthors’ quantitative approach to governance highlights the shortcomings of cross-sectional data. which Black and Khanna (2007) have used successfully to evaluate the effect of corporate governance reforms in India. Alternative approaches to cross-sectional work include the event study. uses limited firm variables. Black also employs an instrumental variables approach. earlier work relies on cross-sectional analysis. and Rachinsky (2006) show both OLS and fixed-effects specifications are unreliable when using cross-sectional data. We argue that firms in emerging economies actually had more capacity to rise above their home country institutions in recent years. Specifically.
it is impossible to run analyses on firms alone and not simultaneously capture some of the country effect. limited set of firm variables. and firm. First. but to our knowledge. In addition to expanding the set of observable firm characteristics. R&D intensity. our methodology improves on that of previous studies by accounting for the nested nature of the data. we run our models successively. As firms are necessarily embedded within countries. In addition to firm fixed effects. These firm fixed effects are intended to detect unobservable processes happening inside firms that have not been captured by the observable firm variables. Year effects can also be mistakenly attributed to country or firm effects if not analyzed separately. we also aim to capture unobservable firm characteristics by looking at firm fixed effects. and foreign sales. To isolate firm and country effects. we subtract the year and country effects from those explained by year. Country fixed effects have been used in previous studies on this subject. This difference gives us an accurate measure of what firm characteristics alone are contributing to governance variance. To look at firm effects. Subtracting the year effects gives us our country effects. These variables include sales growth and cash/assets. . then country and year effects. we look at year effects.5 variables looking at a small portion of what identifies firms in emerging markets. no paper has also included firm fixed effects. country. We show how models that include the full set of firm characteristics consistently explain far more of the variance than models that simply use the original. we also explore unobservable firm choice using ANOVA and random effects specifications. Lastly. These additional firm variables capture additional and highly relevant firm characteristics such as income growth. We identify 17 additional observable firm variables that we predict should be prescriptive of firm corporate governance choices.
in emerging economies. we use complete panel data provided to us by the independent investment research firm. Kogan. For developed economies. and Palepu (2006). and Wei (2009). Doidge. This second dataset is much larger and encompasses a greater number of countries and observations. in contrast. Khanna. Ratings data were provided to us by FTSE for four years beginning in 2005 until the index was discontinued in 2008. Instead of using a single year of this data. A single year of this data was used in the previous corporate governance studies that found greater importance for country variables including Doidge. Karolyi. which issued market index-benchmarked as well as industry-benchmarked corporate governance quotients for most of the last 10 years. Therefore.6 These methodological improvements run on three sets of panel data show that. Durnev and Kim (2005). Chen. Secondly. and Stulz (2007). the GRI dataset is dominated by developed economies. As well. Karolyi. Credit Lyonnais Securities Asia (CLSA). and Stulz (2007). we see that country-level variables always explain more variance. which tracked corporate governance behavior of firms in emerging economies from 2000-2010. In addition to these two main datasets. we also looked at panel data from FTSE’s Corporate Governance Ratings Index in order to compare our results with those in previous papers that used this data. we use data from the Global Reporting Initiative (GRI). These patterns are consistent across all our models and throughout use of three different datasets. a feature we leverage to look at the differences between emerging and developed economies. we see two distinct patterns for these two different types of countries. firm-level variables are anywhere from roughly equal to significantly more important than country-level variables in explaining variance in corporate governance ratings. and Klapper and Love (2004). we use . Our corporate governance ratings data come from two main sources. Data from CLSA have been used by several different studies including Chen. First.
the most important of 2 This range comes from the regressions that involve both observable and unobserved firm and country characteristics in the form of fixed effects (OLS). The results here for developed economies strongly contrast with those from emerging economies. random effect regressions (xtmixed). fixed effects. and ANOVA. firm variables explain roughly the same amount and often more of the governance variance than do country variables.5% of the variance.3% of the corporate governance ratings’ variance. This rise was due primarily to firm-level characteristics.2 We were only able to look at developed economies alone in the GRI dataset. and country characteristics explain roughly 11-28. The results from using the FTSE data confirm the same trend we find in the CLSA and GRI datasets. using the GRI Industry-Based Corporate Governance Quotient as the dependent variable. in emerging economies. random effects. . and nested ANOVA regressions. as there were too few developed country observations in the CLSA data.3%. Country characteristics explained the least variance in the random effects regression using the GRI Index-Based Corporate Governance Quotient as the dependent variable. Across our main two data sets from CLSA and GRI we see that.7 four years of data from FTSE’s Corporate Governance Ratings Index. In developed economies. country variables explain significantly more of the corporate governance ratings than do firm variables.3-19.3 Therefore. We run our full set of models including OLS with observable variables. Our results provide evidence that many emerging economy firms distinguished themselves above and beyond their home country peers in corporate governance ratings during the last decade. Observable and unobservable firm characteristics explain only 15. in emerging economies.1% of governance ratings variance in developed economies while country characteristics explain 45. 3 Country effects explained the most variance in the ANOVA model. Firm effects contributed the least in the random effects model using the CLSA corporate governance score as the dependent variable. thereby strengthening the conclusion that our results are not merely due to data selection.3-50. Firm effects explained the most variance in the random effects model using the GRI Industry-Based Corporate Governance Quotient as the dependent variable. We excluded results from the regressions using only observable characteristics without fixed effects because they explained far less of the variance overall.9-57. in contrast. unobservable plus observable firm characteristics explain 37.
Background Investor protection. unhampered by an environment with weak and incomplete governance institutions or low financial market development. and especially fixed effects. and Section VI concludes. The fact that firm characteristics. and Robinson (2001)). Legal and colonial origins can be important determinants of present day legal institutions (Acemoglu. Section IV provides the results of our analysis. These findings are important for both investors and firms in emerging economies. . Section V presents robustness checks. provided at the national level by the government. Thus. firms should enjoy a sense of agency in their prospects for growth. Investors will be able to observe corporate governance variance within countries and identify valuable investment opportunities. Shleifer. Lopez-de-Silanes. Section II provides the institutional background and describes the previous literature related to our study. and Vishny (LLSV hereafter) (1998)). played a substantially greater role in emerging economies suggests that there is something happening inside these firms that allowed them to differentiate themselves from their home institutions and peer firms. Understanding country-level institutions such as the legal protections for minority shareholders has been greatly advanced by work looking at the legal origins of countries. II. is important in determining the quality of firm-level governance on the ground. The remainder of this paper is organized as follows. firm corporate governance measures are important for accessing capital (LLSV (2000).8 which are unobservable. which largely determine current governance practices in the country (La Porta. In Section III. Johnson. Weak legal protection for minority shareholders is strongly related to less developed capital markets (LLSV (1997). we describe our data and present our methodology. Also. (1999)). (2002)).
separate from their country-level institutions (Klapper and Love (2004)). this work argues that firms are limited in their flexibility to affect their own governance. Krishnamurti. while firm characteristics only explain 4-22%. they argue. Engelen and Essen (2010) show that the quality of a country’s legal system. Previous work has sought to answer whether country characteristics better explain corporate governance policies than do firm characteristics. country-level differences may persist due to path dependence (Bebchuk and Roe (1999)). In general. Krishnamurti. using a cross-section of the CLSA data. In less developed countries. and Kim (2006)). as measured by investor protection is a strong predictor of underpricing. find that country variables explain 39-73% of ratings variance. Doidge. Sevic.9 especially at a lower cost (Black. In spite of growing pressure to converge to similar institutions. Jang. Recent work has found a strong role for country characteristics in explaining firm governance behavior (Doidge. Stulz (2007). reveal that the country fixed effects are the only consistently significant variables. with a few exceptions. and Sevic (2006) look at Asian firms after the financial crisis and find a strong country effect in firm-level governance scores. where firm-level and . Sevic. Regressions of the components of firm level corporate governance. Much of this work shows the importance of a country’s institutions in determining firm choices and outcomes. While widely recognized that firms underprice at IPO’s. Karolyi. and Sevic (2006)). they argue that firm characteristics explain almost none of the variance because the costs of adopting good governance outweigh the benefits. This work has provided insight into whether firms in countries with weak legal institutions can rise above their home-country peers to adopt strong corporate governance policies. Karolyi. and Stulz (2007). Other work has argued for a link between country institutions and various firm performance and governance measures.
is viewed as an endogenous firm choice (Himmelberg.10 issue-specific variables were previously thought to be the only relevant characteristics. not national wealth measured by GDP (Johnson. even in countries with weak legal protection of minority shareholders. specifically the expropriation of minority shareholders (Lemmon and Lins (2003)). firms fared better than their peer firms if they had employed higher quality corporate governance. they adopt various corporate governance practices to match their goals. outcomes from the Asian Financial Crisis (1997-1998) also reveal a strong role for country-level corporate governance institutions. Sawicki (2009) shows that in Asian countries before. How much and which kind of tunneling occurs in firms differs across countries with different legal rules (Atanasov. Dividends issued by firms can also exhibit a relationship with firm corporate governance. and Love (2006)). During and after the crisis. for example. Previous work that employs this perspective has explored governance practices’ relationship with one or several specific firm characteristics. A more limited set of work has argued the relative importance of firm characteristics in determining firm corporate governance choices (Durnev and Kim (2005). As firms respond to external incentives and environmental change. Laeven. Variation in the protection of minority shareholders exists within emerging economies with weak country-level institutions. Corporate governance quality and firm performance. Finally. dividends were strong predictors of a . Black. legal protection for minority shareholders best predicted exchange rate depreciation and stock market declines. and after the financial crisis. Klapper. and Palia (1999)). here. during. Ciccotello. Looking at the Asian Financial Crisis from 1997-1998. Boone. Hubbard. can play a strong role in determining the firm’s corporate governance practices. Breach. and Friedman (2000)). and Gyoshev (2010)). Tunneling as well is closely related to the institutions of the country in which the firm is based. A firm’s ownership structure.
This literature thus seeks to answer whether corporate governance is smart business. One such paper by Bae and Goyal (2010) shows that. predictability. One such paper by Klapper. firm-level variation in governance was strongly associated with greater stock price increase. yes. and ownership structure. and Love (2006) acknowledges that some variation in governance measures of cumulative voting and proxy by mail can be explained by country fixed effects. In a wide sample of 28 countries across 1990-2003. The answer provided by several papers is that. as measured by accruals quality. the importance of country institutions in determining firm governance directly. persistence. when South Korea officially liberalized their equity market. strong corporate governance improves a firm’s financial outcomes (Mitton (2002). Bae and Goyal (2010)). smoothness. timeliness. than do country characteristics (Bae and Goyal (2010)). In addition to work recognizing the variation in within-country corporate governance and the work on the importance of governance for financial performance. However. and conservatism. Most often. foreign ownership. firm and industry characteristics explain more of the variation in earnings quality. and higher rates of capital accumulation. and that this relationship was incremental to the country-level variable of the legal regime. few papers have addressed the question at the center of this study. have also been shown to predict firm . (2006) argue that a larger portion of firm governance is explained by firm characteristics. external financing. Klapper et al. value relevance. specifically whether or not the firm has a second large shareholder and the use of equity as a source of external financing. Bae and Goyal’s work goes on to assert the greater importance of firm characteristics than country characteristics in explaining these outcomes.11 firm’s governance. this literature has explored the question of whether firm governance choices are important in determining that firm’s financial performance. Firm investment opportunities. Laeven.
Research on cross-listing. Interestingly. These firms are listing on US stock exchanges precisely in order to exhibit their value and distinguish themselves from firms in their home country (Blass and Yafeh (2001)). for example. firms enhance their reputations. Durnev and Kim (2005) also find that the relationship between firm characteristics and corporate governance is stronger in countries with less legal protection of investors. their work supports our decision to examine emerging and developed economies separately. which gave industry and index- . and attract outside financing for up to two years after they cross-list (Siegel (2005)). These firm characteristics have strong. The first data set comes from the Corporate Lyonnais Securities Asia (CLSA). an independent research firm that tracked a number of corporate governance measures for emerging economy firms during the last decade. Data We implement our analysis using two main data sets. This work thus shows that firms are willing to incur costs in order to improve their reputations and attract financing. positive correlations with each governance category that composes the CLSA corporate governance ratings.12 governance more strongly than country characteristics (Durnev and Kim (2005)). As emerging economies are often cited to have weaker legal protections. III. By cross-listing. The ability of firms to distinguish themselves from their home country institutions and peer firms has been taken up by other literature as well. has noted that different types of firms from the same jurisdiction are more or less likely to crosslist on US exchanges if they have higher growth prospects and are willing to sacrifice some control for finance (Coffee (2002)). especially in countries with weak legal protection for shareholders (Reese and Weisbach (2002)). The second dataset is from the Global Reporting Initiative (GRI).
the points awarded to each firm were determined by its answers to a lengthy survey conducted by CLSA. Initially. fairness. a single point was awarded for each yes and a zero for each no. Each firm’s corporate governance score is composed of ratings on 57 different sub-measures (plus or minus a few depending on the year). Over the ten years that CLSA tracked corporate governance for emerging economy firms. We did not include the S&P data used in previous studies. Each year. computed as the average of all the smaller measure scores. 91% of which are from emerging economies. We were given access to the complete CLSA historical ratings by the company. In the final year of the CG Watch reports. independence. three more options were added: largely (0.75 points). This was composed of 10 years of data from 2000-2010. responsibility. “Clean and Green”.13 related scores from 2003-2009.448 observations. Over 475 firms were ranked along these metrics and given a final corporate governance score. . We also ran our analysis on a third dataset that was used in previous papers. CLSA also included a measure for environmental friendliness. transparency. This dataset was FTSE’s Corporate Governance Ratings Index scores from 2005-2008. intended as a robustness check on our approach and unique results. the methods by which the rankings were gathered changed only slightly. These reports highlighted emerging economy firms who had exceptional governance (“CG Stars”) or firms which had fallen in their scores since the previous year. Over the time span of the data. these firms compose 4. Later. The CLSA corporate governance data was shared with investors annually in the company's “CG Watch” reports. These 57 sub-measures fall into the categories of discipline. and social awareness. each survey question was answered simply yes or no. as S&P did not continue to give ratings beyond a single year for more than very few firms and thus our panel data approach would have been limited to one year. accountability.
5 points). The final governance quotient for each company is computed using ratings on 63 different issues in four categories: board of directors. responsibility. and the correlations between the variables appear in Panel B. responsibility was absorbed into another category. and marginally (0. audit. increasing in number from 53 to 87. GRI ranked the corporate governance performance of over 2. In 2007. which is then compared to the scores of other companies in the same index to produce the firm’s index corporate governance quotient. In 2000. During 2003-2009. and social awareness each accounted for 15 percent.200 companies worldwide. the first year the scores were computed. MSCI’s Europe. These 63 scores are combined into a single score for each firm. which was issued by Risk Metrics. Both measures are used . several were dropped and replaced with others.14 somewhat (0. Our second data set comes from the Global Reporting Initiative (GRI). and FTSE All-Share indices. The exact questions also changed over the years. antitakeover. Asia and Far East and the S&P/TSX Composite. The score is also compared to those of companies in the same industry to produce the firm’s industry corporate governance quotient. accountability. when the Clean and Green category was introduced. Points for each category were then combined and weighted to produce the firm’s final score. each of the remaining categories accounted for 15 percent of the final score while Clean and Green represented 10 percent. The exact weighting of each category also changed over the years. Russell 3000.25 points). fairness. An example of a typical survey question is this one from the Transparency category: “Does the company publish its fullyear results within three months of the end of the financial year?” The summary statistics for several of these corporate governance measures appear in Table 1 Panel A. and compensation/ownership. Inc. FTSE All-World Developed. discipline accounted for 10 percent of the score while transparency. independence. including all companies in the S&P 500.
Although there are similarities in the processes by which firm corporate governance scores are assembled in the CLSA and GRI datasets. accountability. The GRI dataset did not initially include emerging economies and only started to do so in 2003. firms are compared to an industry peer group based on the S&P GICS (Global Industry Classification System) of 24 industry groups. For the CLSA data. The summary statistics for these variables appear in Table 1. Small-Cap 600. companies). Russell 3000. The CLSA scores are not computed relative to any market index or peer industry group. As such. The CLSA questions focus instead on issues relevant to emerging economies such as transparency and corruption. the corporate governance quotients were computed only for US companies. press releases. Panel C and the correlations between these variables appear in Panel D. . The first major difference between the CLSA corporate governance score and the GRI corporate governance quotients is that the GRI scores are all relative. firms are compared to a relevant market index such as the S&P 500. This can be seen by comparing the categories of questions.15 in the analysis presented here. The source data for the raw company scores in the GRI rankings comes from public disclosures (SEC EDGAR filings for U. the questions relate to issues that dominate US corporate governance concerns such as the charter and bylaws. Thus. For the Industry Score. independence. transparency. and corporate websites. Mid-Cap 400. For the Index Score. or the CGQ Universe. major way the two scores differ is in the design of the questions. the categories are discipline.S. a score of 40 means that that firms’ corporate governance performance is better than 40% of its peers. It is compiled by GRI analysts. Prior to that. A second. the methods are different enough to ensure that our results are confirming a trend and not merely repeating results on similar data.
only 6. and FTSE data sets is their Western orientation. One possible limitation in the CLSA. GRI. It is therefore possible that non-Western-normed governance efforts by firms and countries in our datasets are being initiated. Firms in these countries with low governance scores could appear less keen to improve governance. and Stulz (2007)). Singapore. In fact. the categories are board of directors. Japan CGI. The FTSE data was heavily dominated by developed economy firms. we also explored trends in data from FTSE.8% of the FTSE firms are located in developed economies. are well represented. Europe CGI. For the GRI scores. This yielded one unique score for each company for each year. These economies are few. We used the average from an entire year’s worth of scores. This index was composed of countries from their Developed CGI. Specifically the emerging economy observations come from Hong Kong. in fact. 93. and clean and green. . are guided by Western norms regarding good governance. FTSE calculated a corporate governance index for firms around the world from 2005-2008 called the FTSE ISS Corporate Governance Index (CGI) Series. and the US CGI. their governance efforts are simply targeting points not focused on in the West. Scores for the index were calculated several times a month for all companies. Euro CGI. UK CGI.2% of the observations come from emerging economies. Indeed. and compensation/ownership. Both ratings are issued in the West and as such. Our main intention with including this data was to provide robustness to our main results by using data from previous studies that found different conclusions (Doidge. social awareness. and Thailand. Many of the emerging economies we examine in our dataset are in Asia. on the other hand. In addition to our two main datasets. fairness. Summary statistics and correlations for this data can be found in Appendix 7.16 responsibility. when. audit. antitakeover. Karolyi. but we fail to capture these changes. The developed economies.
Throughout much of our analysis. in the GRI dataset. S&P. non-Western economies can have the best scores and firms from developed. and Australia. Portugal. We also considered the list of countries commonly called “The Next Eleven/BRIC” countries. Any country that was a member by this year was classified as a developed economy. New Zealand. As described above. Reciprocally. we see that Western and common law countries often receive some of the highest scores. firms from emerging. but rejected the list as it is determined not only by economic growth. Western economies can have the worst scores. Thailand. Some firms from Brazil. GRI results that exclude the tax havens can be found in Appendix 6.17 looking at Appendix 1 for country statistics. and Dow Jones. It is thus important to note that our results go against the possible prediction that only firms in Western and common law origin countries can receive top ratings. we referred to OECD membership by 1990. we differentiate between emerging and developed economies because of the unique trends we uncovered for the two types of markets.. However. so they were all classified as emerging. it is important to point out that many firms from non-Western countries have relatively high scores. Specifically. To operationalize the category of emerging economies. There was a number of competing emerging economies lists published by other analyst groups. and Luxembourg have some of the lowest governance scores. Inc. This explains why Iran is a member of the . Internet Securities. This is true for the United Kingdom. These countries are commonly understood as tax havens and have no OECD membership in 1990. firms from developed Western economies such as Greece. we considered lists published by FTSE. but also by increasing political importance. and Mexico have among the highest scores in the CLSA dataset. countries that were not members of the OECD by 1990 were classified as emerging economies. island nations such as Bermuda and the Cayman Islands. The GRI dataset also included several small.
random effects. and thus allow us to run a single model instead of sequential models. The second set of OLS models adds firm and country fixed effects to look at the contribution from the unobservable characteristics of firms and countries. we chose the OECD membership definition for its ability to classify all countries in our dataset as either emerging or developed. Here we look again at the importance of firms and countries. It is also the most moderate of the lists and avoids many of the outliers presented in other lists. the index-based corporate governance quotient and the industry-based corporate governance quotient. In the end.18 Next Eleven. a) Empirical Design We estimate the sources of corporate governance ratings variation using a combination of ordinary least squares. Because the CLSA dataset has one corporate governance score. is the corporate governance score for each firm in our sample. The independent variables in the regressions are . we run three sets of regressions. as in all models. The first set of OLS models looks at observable firm and country characteristics to analyze to what extent specific variables explain corporate governance ratings. and the GRI dataset has two corporate governance scores. but on no other emerging economies lists. and nested ANOVA models. the cgscore. Our random effects models use xtmixed specifications. and run the models sequentially as we did with our OLS models. For our OLS models we run two sets of regressions. In every regression except for one random effects model we include year variables to control for fixed effects that vary over time. where firms are nested inside countries. This sequential structure is what defined “nested ANOVA” rather than simply ANOVA. The dependent variable for these models. Our third set of models relies on nested ANOVA specifications. These models simultaneously explore observable and unobservable firms and country characteristics’ contribution to explained variance. Random effects models also take into account the hierarchical nature of the data.
19 different combinations of sets of variables. Closely Held Shares. Specifically. which uses EBITDA to measure dependence on external financing. Thus. In addition to these original variables. we used Antidirector x Legal. GDP per capita. which interacts the country's Revised Antidirector Rights Index with the Rule of Law in the country. and Cash/Assets. Log(Assets). The full list of the 17 additional firm characteristics can be found in the variable descriptions and correlations for each data set. which is measured on a two year basis. and Stock Market Cap/GDP. In the OLS and nested ANOVA models we look at the additional Adjusted-R² to determine how much ratings variance is explained by the variables in that model. which divides the country's entire stock market capitalization by the GDP. we keep year fixed effects but add country variables and look at the additional Adjusted-R² from country variables. Stulz (2007). which is the percentage of total shares that are closely held. we cannot simply look at the R² without taking this into account. Our regression equation at this stage can be written out as: . we include 17 additional firm characteristics in order to capture any effects missing in the original. Next. This means that we first look at the Adjusted-R² from year fixed effects alone. with firms nested inside countries. we show the contribution of firm and country characteristics by adding each set of variables successively and looking at how much additional rating variance is explained in each model. set of variables. and somewhat sparse. Karolyi. Our firm variables include the original set of firm characteristics used in previous studies: Sales Growth. Because our data is necessarily hierarchical. Financial Dependence. The country variables are those used in previous studies such as Doidge.
Vector α represents all stable characteristics of countries and ρ represents all stable characteristics of firms. To evaluate how much firm variables explain of ratings variance we next keep year fixed effects and the country variables. and β3. or their fixed effects. Year fixed effects are included in every model. are the observable country characteristics. but add in firm variables and analyze the additional Adjusted-R². Country and firm fixed effects models involve dummy variables for every country or firm. When we include the original set of observable firm characteristics our regression equation becomes: Regression equation (2) preserves the elements of regression equation (1). The vector γ represents the coefficients for each year effect. as the model dictates. but adds in several observable firm-level variables. we look at unobservable characteristics. Equation (3) captures the fixed effects regressions where we include both country and firm fixed effects. β2. Following our observable characteristics models. We include firm-country time . but also the 17 additional firm characteristics not included in previous studies. attached to coefficients β1. The listed variables in equation (1).20 The dependent variable is always the relevant corporate governance score for the company i in year t. The next regression includes not only the firm-level variables listed above.
trends in the all fixed effects models as well, captured in γ. β1 and β2 represent the unique slopes for each country and firm.
The additional R² from each combination of variables is calculated using the Adjusted-R² to adjust for the number of observations. For the set of regressions that look just at observable characteristics, the additional variance explained by country characteristics is the Adjusted-R² for Model 2 minus the Adjusted-R² for Model 1, which includes only time trends. The additional variance explained by the original, limited set of observable firm characteristics is the AdjustedR² for that Model 3 minus the Adjusted-R² for Model 2. For the full set of firm characteristics including the additional 17 firm variables, we take the Adjusted-R² for Model 4 and again subtract the Adjusted-R² for Model 2. For the fixed effects regressions, we proceed similarly. The additional variance explained by unobservable country characteristics is the Adjusted-R² for Model 5, which has country and year fixed effects, minus the Adjusted-R² for Model 1, which has only year fixed effects. Looking at the unobservable plus the observable country characteristics, we subtract the Adjusted-R² for Model 6, which has country and year fixed effects as well as observable country variables, from that of Model 1, to remove the variance explained by time trends again. The additional variance explained by unobservable firm characteristics is the Adjusted-R² for Model 7, which has firm, country, and year fixed effects, minus the Adjusted-R² for Model 5, which has country and year fixed effects only. And lastly, looking at the additional variance explained from unobservable and observable firm characteristics, we take the Adjusted-R² in Model 8 and subtract the Adjusted-R² in Model 6,
which also includes both unobservable and observable country characteristics. Thus, our method is to add on first time, then country, and then firm variables in various combinations to observe the additional corporate governance ratings variance explained by each set of variables. We also run random effects models and nested ANOVA regressions to support our initial results. The random effects model allows us to run a single regression that accounts for the hierarchical nature of the data and shows the variance contribution of firm and country individually. Our random effects models use the xtmixed command and look like equation (3), but instead of α and ρ being the fixed parameters, they are random variables. This allows for variation within and between companies and countries. We run two random effects model, one with and one without year fixed effects, Models 9 and 10, respectively in each set of regressions. Finally, we run a series of models using nested ANOVA, or analysis of variance, specifications. Nested ANOVA models again account for the hierarchical nature of the data and look at the additional Adjusted-R² contributed by firm and country effects. ANOVA also allows us to treat the country and company effects as categorical variables and compare the contribution of each to overall ratings variance. Similar to the OLS models, our ANOVA models are run successively to look at the additional Adjusted-R² contributed by each category such as country or firm. As in our OLS models, we first run a model with only time trends, then a model with time and country effects, and finally a third model with time, country, and firm effects.
IV. Empirical Results Our results consistently show that, in emerging economies, firms are anywhere from equal in importance to significantly more important than countries in explaining corporate
governance ratings variance. This finding is consistent regardless of which dataset and econometric method we use. Over the three dependent variables (CLSA cgscore, GRI index-based cg score, and GRI industry-based cg score) in emerging economies, we see that in our fixed effects specifications firm characteristics explain 37.9-43.8% of the ratings’ variance while country characteristics explain only 14.4-19.4%. Our random effects, xtmixed, models show again that firm characteristics are as important if not more important than country characteristics for corporate governance ratings variation. Here, firms explain 37.3-50.3% of ratings variance while firms explain 11-28.5%. The nested ANOVA results once more confirm the trend for emerging economies. In these models additional Adjusted-R² from firms ranges from 40.5-43.6%, while the additional Adjusted-R² from countries is between 11.5-16.2%. We also look simply at the observable firm and country effects, evaluated in Model 4 of our regressions. This model includes the observable country characteristics, the original set of firm characteristics, as well as our 17 additional firm characteristics. The results here show weak contributions from firms to corporate governance variance in emerging economies. Thus, the results from Model 4 are incongruous with the rest of the results we find in this paper. We take this as evidence that something unobservable is happening inside firms that allows them to affect their corporate governance rating; this unobservable process is often not captured in specific, observable firm variables used. This interpretation of the results is bolstered by the overall low amounts of variance explained by firms and countries when just using observed specific variables. Firm characteristics explain -1.3-6.0% of variance while country characteristics explain 5.2-9.5%. Models that employ fixed effects, random effects, and ANOVA specifications
Once we understood the difference and we separated the data into developed and emerging economies using a consistent definition we found strong and reliable results in both datasets. In the GRI data. The CLSA data was almost entirely composed of emerging economies while a majority of the GRI observations came from developed economies. We determined that emerging and developed economies should be evaluated separately when we initially ran our two main datasets.0% of the ratings variance while firm random effects explain roughly 18. however. The nested ANOVA results for GRI . These results come solely from the GRI dataset. These results were also confirmed with the addition of the FTSE data.1-46. which followed the same pattern. The results are confirmed by the FTSE dataset.24 are therefore necessary to properly measure this unobservable contribution by firms to corporate governance variance. In our random effects models.1%. The sample size for the regressions ranged from 53-207 when we looked just at CLSA developed economies. for the observable and unobservable characteristics using fixed effects models. We found unique trends in the CLSA and GRI datasets.1%.2% of the ratings’ variance while firms explain only 15. we focused on the GRI dataset for developed economies and saw that. countries explain 56. In the CLSA data. as the CLSA data contained too few developed economy observations for reliable results.057.4-17. countries contributed more to the variation. Therefore. in contrast. We soon realized that the reason for these differing results was the composition of each dataset. In developed economies we find that country-level variables consistently explain substantially more of the ratings’ variance than firm-level variables. we see the result that country random effects explain 48. firms contributed roughly equal amounts to governance ratings’ variance and often more.7-19.
000 observations. looking at the full set of firm variables and firm fixed effects. Considering that the overall dataset includes over 4. we see that firm characteristics account for 41. the limited firm variables. The results from Model 2 show that by adding country variables we can explain an additional 5. In the model with year fixed effects. the country variables. In Models 1-4 we build in the different year effects. but when we include the expanded set of firm variables in Model 4. The random effects models echo the results found in previous models. and confirm again that firms are more important in emerging economies.5%.9-57.0% of the ratings variance. Adding the original set of limited firm variables does not add any explanation of variance in Model 3. excluding these developed economies does not bias our sample in any direction. . Model 6 shows that.0% of variance on top of what the country variables explain. The strong results and high Adjusted-R² in the firm fixed effects models (78) suggest that much of what is important and happening at the firm level in emerging economies is unobservable.2% of the CLSA corporate governance ratings variance. and then the expanded firm variables to see the contribution of each to the Adjusted-R².4% of the ratings variance over what year fixed effects explains alone. However. we see that firm variables in total explain 6. The results from the CLSA emerging markets data are found in Table II. including country variables as well as country fixed effects explains 14. The data used to calculate the results in this table include almost all of the original data in the CLSA dataset. The observations excluded range from 58-207 observations.25 developed markets are similar. depending on the model.3% of the ratings variance and firms explain roughly 15. We excluded developed economies in order to cleanly evaluate only emerging economies. In Models 5-8 we look at fixed effects in addition to specific firm and country variables. Countries explain 55.3-15.
Model 4 . and add new understanding to why previous studies perhaps found such different results. we see that company random effects explain 37. 41. Specifically. when using nested ANOVA the amount of ratings variance in emerging economy firm governance explained by firm characteristics is greater than that explained by the country characteristics. They also show the same pattern of firms in emerging economies explaining as much if not more of the corporate governance variance as do countries. In Panel B we confirm the results found with OLS fixed and random effects models using nested ANOVA specifications again on the CLSA emerging economies data. the picture from Table II is consistent: Firm characteristics explain significantly more of CLSA corporate governance ratings variance as country characteristics once we include unobservable firm characteristics. which ensures that the rise in R² is not simply due to the larger set of variables in the company fixed effects and random effects regressions. The results from the GRI dataset both corroborate what was found when looking at the CLSA data.5% of the index-based CGQ variance. These results were consistent with those reported in Panel A of the same table. and 7. The OLS and xtmixed results from the GRI emerging economies data are listed in Tables III. Overall. The results in Panels A and B can be evaluated as those were for the CLSA data. First.3% of the ratings variance while country random effects explain 26.4%. In Model 2 we see that observable country variables explain 9.4% of ratings variance is explained by the firm effects while only 11.3% of industry-based CGQ variance. Panel A uses the index-based corporate governance quotient compiled by GRI while Panel B uses their industry-based corporate governance quotient. according to the nested ANOVA models.26 Model 10.5% is explained by country effects. we look at the specific firm and country variables in Models 1-4. In all of these models we look only at the Adjusted-R². We see that.
3% in Panel A and 43. For the index. our ANOVA results exhibit the same pattern witnessed in the OLS and xtmixed models. firm characteristics explain roughly equal to a greater amount of variance in the CGQ than countries do.and industry-based scores.5% additional variance in Panels A and B. while firms explain an additional 43. we used the other portion of the GRI data that is made up entirely of developed economies. To show this.6% and 40. Countries explain much less: 28. The results in all models using developed economy data are substantially different. .3% and 2.5% of the variance. the developed economy observations in the GRI dataset suggest that country-level variables are far more important at explaining ratings variance in that setting. The ANOVA emerging economy results can be found in Panels C and D of Table III. Model 10. In Model 8 we include firm and country fixed effects for unobservable firm and country characteristics. we see consistently that. we see that firm effects contribute 37. Including the full set of firm variables and firm fixed effects in Model 8 adds 37. Countries explain only 16. in the GRI dataset when we look at just the emerging economies.5% in Panel A and 11% in Panel B. relative to country characteristics found in emerging economies.and industry-based corporate governance quotients. We further test these results by running nested ANOVA models on the GRI data. Taken together with the previous tables. Thus.27 shows that by adding the full set of firm characteristics we explain -1. We then re-ran the same analyses done on the emerging economies. In contrast to the emerging economy trends.8% in Panel B to variance explained. In our random effects model with year fixed effects. relying on the same separation of the data into emerging and developed economies.2% and 11. Table III echoes the greater importance of firm characteristics.4% of additional CGQ ratings variance for the index.8% in Panel A and 50.3% in Panel B to explaining corporate governance variance.
test.3%.7% of the variance while observable firm characteristics explain 7. For the index-based CGQ in Panel A. countries explain 55.0% and 48.4%. countries explain 56.0% and 57.9%. in developed economies. We progress through the results of Table IV much as we did for Table III. observable country characteristics explain 38. observable country characteristics explain 41.2% of the variance while firms explain only 17.0% of the variance while observable firm characteristics explain only 8. the results show that there are two distinct trends for emerging and developed economies.and industry-based CGQ’s. Therefore.28 Unobservable plus observable country characteristics account for 46. OLS and xtmixed results are in Panels A and B while ANOVA results are in Panels C and D.9% and 57. First we can look at the observable firm and country characteristics in Model 4 of Panels A and B. Random effects and ANOVA results also strongly reveal the importance of countries in developed economies.1% of the index. respectively.or industrybased CGQ.5% and 15. and then prove these two trends. The results for the developed economies can be found in Table IV. ranging from 15.3-19.1% and 15. Similarly. countries explain more of the ratings variance than firms.1% of the ratings variance while firms explain 15.1%. Using OLS on observable . The variation between and within the two datasets allowed us to discover. for the industry-based CGQ in Panel B.1% and 18. In Panels C and D. Firm characteristics explain far less. overall.0-57. firms explain roughly equal to significantly more of the corporate governance ratings variance than countries. we see that countries explain 46.3% of the ratings variance in developed economies depending on the model and the use of the index. In Model 8 where we include all of the observable and unobservable firm and country effects. In Model 10 of Panels A and B.1% of the variance. where the ANOVA results are located. while firms explain 19.7%. In emerging economies.
random effects. the ANOVA results show that firms explain 32. and Stulz (2007). The Models lost due to insufficient observations are 4 and 8. In Model 10. . and Stulz (2007) paper in that it is almost entirely composed of developed markets. We are able to compare our results to theirs by using the same dataset they used. Karolyi. we tested our conclusions against those found in previous studies by running our models on one of the primary datasets used in the earlier work. In Panel B. The results for the emerging economy data from FTSE can be found in Table V. the random effects results show that firms explain 34. We can however. Finally. and ANOVA specifications. get a clear. those that include the full set of 22 specific firm variables. which was calculated for four years from 2005-2008. fast. Karolyi. Specifically we compare our results to literature that finds a much stronger role for country characteristics in determining corporate governance ratings using the exact same data that literature uses.2% of the ratings variance while countries explain only 16. FTSE's Corporate Governance Ratings. both of which use all 607 emerging economy observations. and Japan and the UK are heavily represented. We acquired this panel dataset from FTSE's Corporate Governance Ratings Index.3% of the ratings variance while countries explain 15. Their work uses a single year of data from FTSE. These results can be found in Appendix 7. and reliable picture of this data by looking at the random effects and ANOVA results. Comparing the summary statistics of our FTSE datasets confirms that our FTSE data is similar to that in the Doidge.3%. which showed that country characteristics were roughly 10 times more important than firm characteristics in explaining governance variation. we show that these trends are consistent throughout.29 firm and country characteristics and then combinations of observable and unobservable characteristics with fixed effects. but extending it over 4 years for analysis over time. One of these papers is Doidge.8%.
30 The developed economy results from the FTSE data are in Table VI. when applied to the FTSE data. To understand the importance of being a . the distribution of emerging and developed economy scores.6% of the variance. our empirical approach. In Model 10 of Panel A in Table 6.1%. but still they often bear the name of a multinational company and may have involvement with other subsidiaries and/or the headquarters.4%. corrupt regime relationships.5% of the variance while firms explain an additional 17.7% of the variance while firms account for only 24. and finally the importance of industry. In both the CLSA and the GRI datasets there are a number of multinational firms. countries contribute 65. These firms either have independent subsidiaries in markets that enable them to be evaluated as local firms or their headquarters are in the given country. Like the other data. When we include the unobservable characteristics. In the nested ANOVA results in Panel B. The multinationals are traded under unique tickers. yields results that do not differ from the pattern found in the other datasets.4% of the variance on top of what years explain while firms only explain -2. Robustness We test our results using a variety of checks and they remain robust. explore the importance of multinationals. The tests.6% in Model 4. V. Random effects and ANOVA models echoes these results. county dominance of results. countries explain 65. the relative importance of countries and firms switch for the FTSE developed economies. Firms explain more of the ratings variance in emerging economies and countries explain more variance in developed economies. In Model 2 we see that observable country characteristics explain an additional 59. Firms only explain an additional 13.7% on top of what years contribute. specifically. Therefore. we see that countries explain 52.
With or without multinationals the firm effect is larger than the country effect in emerging economies to varying degrees. Further research could serve to explain this phenomenon. We then looked at whether these firms are multinationals and how many subsidiaries their parent company has. As well. In the CLSA data.448 observations are multinationals. we matched all companies in the CLSA dataset to those firms listed in the Directory of Corporate Affiliations (DCA). Using our DCA matching to distinguish multinationals and single-market firms. For non-multinationals in emerging economies. Looking at the firms confirmed our earlier results. The results from these models can be found in Appendix 2. Across the board. The number of subsidiaries varied from 0 to 91.747 observations. This result fits well with the intuition that firm characteristics are an important part of understanding corporate governance ratings for emerging economies. but the effect is smaller than for all emerging economy firms. we saw that the effect of firm characteristics is stronger for emerging economy multinationals. Both of these effects could possibly be driving multinational firms to have higher governance ratings and to exhibit greater importance for country characteristics. company characteristics are still slightly more important than country characteristics. Firms in multiple markets may have to comply with all relevant sets of government regulations regarding governance. we reran our models for both sets of firms in emerging economies. the average number of subsidiaries for multinationals in this datasets is 1. it could be that corporate governance improvements are being driven by corporate headquarters.31 multinational in an emerging economy. even in markets with weak local institutions. roughly 39% of the 4. even if they have largely independent subsidiaries. totaling 1. We also considered the possibility that firms in emerging economies may not be motivated to improve their corporate governance if they benefit from close ties to a corrupt .5 with a standard deviation of 7.25.
this time excluding . Results from this modified test show that the SEC compliance variable is never significant for the CLSA data. Firms in emerging economies are determining their governance regardless of ties to corrupt governments. Taken together. If this were the case. These results are corroborated further by additional tests of the models with and without the SEC compliance variable. these findings add weight to our interpretations that the results we find are driven by emerging economy firms looking to improve their access to capital by improving their corporate governance ratings. In all cases including or excluding this variable does not change our results significantly. we re-ran all models where the SEC compliance variable is included for both datasets. In dividing the data into emerging and developed economies. we ran our models again. there was a risk that a specific country or type of country was responsible for the different trends in the GRI dataset and in developed economies. The presence of this compliance should distinguish firms that are able to improve their standing through corrupt means and those that do so by improving corporate governance measures in keeping with our model.32 regime. In short. we would expect the results to be different if the SEC compliance variable is both significant and if its inclusion or exclusion shifts our results. The unimportance of SEC compliance suggests that firms do not ignore governance because of relationships with corrupt regimes. not through relationships with corrupt political regimes. In order to test this possibility. The Adjusted-R² of the models changes by less than one one-hundredth of a point when we include and then exclude the SEC compliance variable. our results would be biased and would not accurately reflect the capacity of firms to improve corporate governance in order to improve their access to capital. and is only significant occasionally for the GRI dataset. To test this question.
When the models are run on all developed economies without the UK and Japan. Japan is close at 3. The kurtosis was somewhat starker. Interestingly. Japan was slightly positive at 0. perhaps because of analyst biases. but the United Kingdom is up at 9. To determine if there was a pattern where the worst firms in the UK and Japan are rated higher than elsewhere. These results showed that excluding any combination of countries fails to remove countries as the more important predictor of corporate governance ratings in developed economies. we looked at the skewness and kurtosis of other countries.022.33 countries individually. then two at a time. We see that the importance of country effect generally drops somewhat and the firm effect rises only slightly. These two countries are also the two largest sets of observations in the developed economies dataset. while the United Kingdom is another 3. the firm effect is larger. We examined these results to see if excluding certain countries affected the relative importance of countries as compared to firms.7.145 observations of the 13.2. This suggests that the distribution for the UK . These results can be found in Appendix 3. certain combinations did weaken the effect. Most other countries hovered between -0. however.0.977 developed economy observations. Looking only initially at the index-base quotient we found that the average skewness for all developed economies is -0. Japan composes 4.01 while the average kurtosis is 1. Most developed economies’ skew ranges between 1 and 3.7 while the average score for the UK is up at 83. their average scores differed considerably.8. Japan has an average score of 26. Specifically. For the index-based score. We ran the models on all developed economy observations except for the UK and Japan for both the index-based as well as the industry-based scores.7. Yet. excluding Japan and the United Kingdom together showed the most dramatic decrease in the relative importance of countries.5 and 0.7. The United Kingdom has the longest left tail for its distribution at -1. three at a time and then four at a time.
we see higher ratings for developed economies. If this were the case. the United Kingdom is getting the highest scores of any country. To explore this possibility. which lists the summary statistics by country. when excluded. The concern here was that perhaps emerging economy firms are only able to rise above their country averages in just a few instances. causes the country effect to be smaller than the firm effect. standard deviation. our findings regarding the United Kingdom and Japan suggest that governance ratings bodies appear to giving systematically different ratings to certain developed countries. The relative importance of country for developed economies remains even in our restricted dataset without the UK and Japan. the results here do not present a refutation of our overall findings. we considered whether developed economy firms are simply at the corporate governance quality frontier while emerging economy firms range from the lowest to the highest governance performance. As another robustness check. At most. 25th percentile. We only included the CLSA scores and GRI index-based score as the GRI industrybased score is similar enough to the index-score that trends can be seen by just looking at one of the two. max. Still. there was no combination of 3-5 developed countries that. we compared the means and variances . and 75th percentile for the corporate governance scores by country. We show this in Appendix 1.34 firms could be driven by infrequent. median. This confirmed that groups or types of countries are not driving the unique developed economy results. then developed economies firms would have higher scores than emerging economy firms on average. As should be expected in this table. min. In spite of the mildly weaker importance of countries in explaining governance ratings variance in emerging economies. showing mean. and positive deviations from the average. In other words. extreme. Whether this is because UK firms include some of the corporate governance stars or whether analysts are biased towards particular UK firms is difficult to tell from this analysis.
9 and 43. The standard deviation for Hong Kong. In Hong Kong and India the 25th percentile scores are 52.8. However the standard deviation in the scores for these countries is similar to the standard deviation for developed economies. the mean for emerging economies’ index governance scores is 59. we looked at the scores of two of our most well populated emerging economies in the CLSA dataset: India and Hong Kong. The percentile scores. is only slightly lower than the developed economy standard deviation average. Details of their summary statistics can be found in Appendix 1.4 while the average 25th percentile score for developed economies is 49.8. the distribution of scores in the two types of countries also suggests that firms in emerging economy firms are capable of rising to world-class governance ratings in more than just a few cases. In addition to emerging and developed economies having roughly similar mean scores.8. show that emerging economy firms range beyond their country averages. We find. India has 641 observations while Hong Kong has 740.9.7 while the average developed economy score is 44. as well.2. Hong Kong and India are around 13 while developed economy scores (with observations greater than 7) have an average standard deviation of 15. while the developed economies’ mean is 44. These countries have roughly average country scores for emerging economies at 59.8 for Hong Kong and 52. for the CLSA data. In the GRI data.7. The mean index-based CGQ is 39. the mean for emerging economies is 54 while it is 59 for developed economies. The 75th percentile scores for .35 for all of our corporate governance scores. 16. Specifically.4 for India. that the mean for developed economy firms is higher. the Hong Kong scores from the GRI dataset are similar. Although there are no India observations in the GRI data. as expected. Thus. the average corporate governance ratings of firms in emerging and developed economies do not differ substantially. but not significantly higher than it is for emerging economies. To show this. 20.
The results show that industry is somewhat important. industry. we first ran ANOVA for year effects. respectively. for our ordered analysis.and three-digit SIC codes as an intermediate level of analysis. country. country and year. then industry. and then finally company. industry is less important overall. 24. Neither one has a monopoly on the corporate governance quality frontier and emerging economy firms are generally able to achieve the highest corporate governance scores in more than a limited number of cases.8 and 61. respectively. This shows that firm effects are not capturing so much of an industry effect that they are insignificant on their own.1 while the average developed economy 75th percentile score is 68. The 25th and 75th percentiles for Hong Kong in the GRI dataset. we see that the firm effects remain dominant over country effects no matter what industry specification is added. 28. However. especially for emerging economies when we look at the three-digit SIC codes. These standard deviations and percentile scores show that the corporate governance scores for developed and for emerging economies range between the best and the worst. In developed economies.6.36 Hong Kong and India are.7. The results from these additional models are included in Appendices 4 and 5. we evaluated the importance of industry in determining governance ratings within each dataset. The firm variable explains more of the variance than the country variable. This means. In these models the main result from previous models that do . and year. To do so we re-ran our nested ANOVA models using two. suggesting that industries play a less important role in explaining corporate governance ratings in developed economies. 67.2. These developed economy averages again exclude those countries with 3 or fewer observations. are very close to the average for all developed economies. then country and year.3 and 59. when looking at our main question of interest. In addition.6 and 53. the importance of companies in explaining emerging economy corporate governance.
and Stulz (2007) paper. by looking at panel data and allowing unobservable firm characteristics to explain variation of firms' corporate governance ratings with fixed effects. and where that did not exist. Karolyi. and nested ANOVA models. Because Rule of Law data was not listed for 2001. random effects. or failure to explore a wider range of observable and unobservable firm characteristics. just looking at 2001. Previous results showing that firms are less important than countries were likely due to an over-representation of developed economy firms in the dataset. we used Rule of Law values from 2000.. In order to compare our results more closely to those in the Doidge. we show that firm effects in emerging economies are as important. than country effects are in explaining ratings variance. However. the results were nearly identical when we ran the same models they used. We see that. and often more important. failure to capture trends over time with panel data. we attempted to recreate their results from just the 2001 data. and Stulz (2007) and others stated that country effects were dominant. Conclusion The results from our multiple specifications of firm and country characteristics provide strong evidence that firm-level variables play an important role in explaining corporate governance ratings in emerging economies. 2001. Karolyi. VI.37 not include industry effects hold as well: firms explain roughly equal amounts of variance in emerging economies and countries explain more of the variance than firms in developed economies. firms are still anywhere from comparable to meaningfully more important than . We then ran our new model specifications that we used in this paper on this single year of data. Prior work by Doidge. Although our replicated results are the exact same to those in Doidge et al.
We theorize that the difference in conclusions could be for several reasons. Differences between our CLSA data and the GRI data imply that there are unique attributes to the different institutional and financial environments in emerging and developed economies. Much attention has already been given to emerging economies. the other data sets Doidge et al. This suggests that 2001 could have been a unique year and those time trends were not accounted for using the crosssectional data. there is agency beyond location for firms. Second. future research . While the country in which the firm is based is still important. they only look at unobservable country characteristics by including fixed effects and do not use firm fixed effects to capture unobservable firm characteristics. this suggests that firms in emerging economies have the capability to rise above home country institutions that may be lacking or to distinguish themselves from their peer firms to both improve corporate governance ratings. The importance of firm-level characteristics in these results overall shows that firms in emerging economies during the last decade had the ability to move separately from their home country peer firms in their corporate governance ratings. In the OLS regressions. Moving forward.38 countries variables. firms are slightly more important and in the xtmixed regressions. 315 of the 711 S&P observation are from developed markets and 1159 of the 1217 FTSE observations are from developed economies. Third. and hopefully attract greater levels of capital and grow. their models do not account for the nested nature of the data by first looking at countries and then adding in firms. firms are statistically equivalent to countries. First. the results we found for 2001 differed slightly from the trend we found over the entire decade that data was gathered. used were dominated by developed economies. Doidge et al found much of the same and concluded that this result was due to lower variance among CLSA countries than in other datasets. And lastly.
Currently. but a natural experiment and subsequent analysis of corporate governance ratings would be better evidence. Such a study could be undertaken at the country level. but only to hint at causality. The results from work suggested here could help to unpack exactly what is happening in the company and country fixed and random effects that suggest a strong role for firms in corporate governance ratings in emerging economies and an even stronger role for countries in developed economies’ ratings. .39 could explore the mechanisms driving country importance in developed economies. as shocks to the variables listed here across multiple countries or regions would be unlikely. our results provide a stronger suggestion of causality. By using panel data over 10 years. future research could work to locate and test an exogenous shock to any of the firm and country characteristics here to try to identify causality. our results are sufficient to show a strong correlation and relationship. As well.
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000 0.574 3.127 -1.827 3.960 0.000 22.000 20.307 3.935 0.525 360.476 78.573 0.250 0. Antidirector x Legal captures the interaction of the Revised Antidirector Rights Index and the Rule of Law in that country.054.054 2. The following firm variables include the observable firm characteristics included in previous studies (sales growth.000 1.373 654.000 116.100 848.236 5.514 1.999 3.505.367.793 8.432.490 75.490 13.000 13. Min 54. This dataset encompasses 10 years of CLSA tracking corporate governance performance of firms in emerging economies.289.433 14.805 0.796 -48.816 -3.301 0.267.442 230.861 3.692 2.301.664 0.997 -100.315 0.458.484 3.167 46.660 452.371 56.980 0.840 2.554 -147.181 Max 97.826 21.587.000 14.057 0.255 3.000 617.000 0.032 14.760 119.365 133.064 16. Variable Corporate Governance Score Sales Growth Financial Dependence Closely Held Shares Log (Assets) Cash/Total Assets Antidirector x Legal GDP per capita Stock Market Cap / GDP Fixed Assets/Total Assets SEC Compliance Assets/Liability Leverage Tobins Q Total Sales 2yr Sales Growth PE Ratio Price-to-book Ratio Quick Ratio Return on Assets R&D Intensity CapitalExpenditure Cash/Dividends 3yr Dividends Growth 5yr Income Growth 5yr Sales Growth Short-Term Debt 5yr Assets Growth Total Debt Median 55. log(assets). The remaining variables described below are additional observable firm characteristics used to capture the complex interaction between firms and corporate governance in emerging economies.484 3.565 0. and cash to assets ratio).220 121.529 40.280 10.904 50.600 314.339 0.226 3.048 Panel A: CLSA Variable Descriptions Mean St Dev.457.000 61.786 -82.150 -6.447 4.714 4. The first variable is the CLSA given corporate governance score.478 3.014 7.405 1.885 3.000 3.046 0.809.618 753. closely held shares (as a percent of total shares).951 -98.230 3.176 0.405 8.553 220.323 147.098 0.419 124.847 3.177 10.853 3.489 292.528 9.185 23.591 0.885 48.789 3.182 37.000 1. financial dependence (EBITDA based).124 2.367.566 22.068 -75.707.236 0.804 -602.066.269 3.362 134.004 14. The next three variables are the three observable country characteristics used in our analysis.400 -4.883 3.598 0.877 3.842.061 2.590 35.555 2.877 -1.523 Observations 3.973 3.793 2.753 0.850 4.562 90.245 30.173 2.640 5.000 70.630 165.633 31.003 12.603 853.020.700 65.871 1.741 1.965 .599 3.186 52.592 4.667 60.011 3.105 0.Table I The following table gives the summary statistics for the Credit Lyonnais Securities Asia (CLSA) data and its companies.121 1.010 8.093 48.717 137.855 187.400 0.517 11.027 0.000 28.000 2.626 3.447 -7.000 5.840.358 24.499 0.651.757 3.302 -5.714 2.008 0.496 3.006 0.804 1.871 0.100 15.447 3.000 11.973 0.483 0.994 1.006 177.466 4.447 3.693 4.969 163.000.562 16.922 -58.306 0.629 14.360 -75.
013 -0.017 -0.028 R&D Intensity 1.036** -0.068*** 0.028* 0.004 0.010 0.032* 0.082*** 0.013 0.018 0.035** 0.001 -0.028 0.048*** -0.150*** 0.000 -0.022 0.037** 0.017 0.003 0.044*** 1.096*** 0.082** -0. Correlation are marked with an * for 5% significance.011 0.055*** 0.073*** -0.119*** -0.014 0.000 -0.008 -0.035** 0.043** 0.056*** -0.008 0.273*** 0.007 0.077*** 0.059*** 1.025 0.004 0.015 1.004 0.005 0. This dataset encompasses 10 years of CLSA tracking corporate governance performance of firms in emerging economies.170*** 0.146*** 0.025 5yr Sales Growth 1.000 -0.026 -0.128*** 0.000 -0.001 0.005 -0.157*** 0.015 0.004 -0.012 0.001 0.004 0.082*** 0.028 -0.050*** -0.091*** 0.010 0.010 0.018 -0.113*** -0.037** 0.026 0.030* 0.014 0.131*** -0.000 0.057*** -0.028 -0.000 -0.002 0.058*** 0.001 -0.951*** 0.136*** 0.005 0.000 0.008 0.081*** 0.002 -0.008 0.016 -0.081*** 0.128*** 1.059*** 0.088*** -0.045*** -0.092*** -0.071*** 1.000 0.026 0.026 0.035* 0.057*** -0.108*** -0.000 0.118*** 0.043** -0.007 0.139*** 0.037** 0.076*** 0.042 0.022 -0.161*** 1.010 -0.069*** 0.016 -0.096*** -0.001 -0.094*** 0.005 -0.019 -0.018 -0.024 0.010 0.138*** 0.181*** 0.171*** 0.077*** 0.017 0.009 0.012 0.004 2yr Sales Growth 1.002 -0.010 -0.025 0.004 0.058*** -0.010 0.055*** 0.046** -0.010 -0.004 0.000 0.201*** 0.005 -0.055*** 0.054*** -0.045*** 0.192*** -0.034** -0.036** -0.041** -0.018 0.002 0.007 0.077*** 0.182*** -0.022 0.000 -0.236*** 0.160*** -0.391*** 0.009 0.010 0.011 0.000 0.004 0.088*** -0.006 0.034** 0. and *** for 0.007 0.003 0.163*** 0.071*** -0.023 0.002 0.155*** -0.038** 1.036** 0.673*** -0.019 -0.143*** -0.006 0.017 0.020 0.018 0.001 0.025 -0.000 0.088*** -0.056*** 0.055*** 1.075*** 0.012 -0.111*** 0.000 0.000 .301*** 0.007 -0.023 -0.056*** -0.004 0.003 0.047*** 0.084*** 0.000 0.029 -0.Panel B: CLSA Variable Correlations The following table displays the correlations among the variables in the Credi Lyonnais Securities Asia dataset.002 0.056*** 0.144*** -0.015 0.124*** 0.003 0.037** 0.226*** 0.067*** -0.049** 0.003 0.000 -0.029 0.007 -0.030** PE Ratio 1.069*** -0.015 0.018 -0.015 0.123*** -0.174*** -0.006 -0.543*** -0.058*** -0.271*** -0.000 0.077*** -0.040** -0.118*** 0.198*** -0.024 0.015 -0.039** 0.002 0.277*** -0.000 -0.157*** -0.006 -0.012 -0.030 -0.028* 0. Corporate Governance Score 1.023 -0.003 -0.017 -0.004 -0.011 -0.013 -0.000 0.001 -0.003 -0.023 0.028* 0.208*** 0.013 -0.024 0.288*** 0.066*** -0.21*** -0.005 Sales Growth 1.003 0.012 -0.128*** 0.000 0.006 -0.010 -0.000 0.034* 0.002 -0.0312** 0.679*** -0.000 0.039* 0.034** 0.031 0.015 -0.031** -0.034** -0.027 -0.000 -0.133*** 0.146*** -0.045** 0.081*** -0.050*** 0.055*** 1.098*** -0.062*** -0.115*** -0.057*** 0.008 -0.031* 0.228*** 0.133*** -0.002 -0.007 -0.000 -0.010 -0.077*** -0.074*** 0.066*** 0.009 -0.083*** 0.011 5yr Assets Growth 1.051*** Cash/ 3yr Dividends Dividends Growth 1.003 -0.1% significance.031 -0.021 0.004 1.035** 0.000 -0.015 -0.021 -0.030 0.015 -0.006 0.000 0.007 0.306*** 0.028 -0.000 0.152*** Price-to-book Return on ratio Quick Ratio Assets 1.067*** 1.008 0.054*** 0.032* 0.009 -0.129*** 0.000 -0.101*** 0.059*** -0.040** 0.129*** 1.035** 0.010 1.020 -0.026 0.028 -0.008 -0.015 0.071*** Short Term Debt 1.015 0.131*** 0.004 0.051*** -0.057*** -0.007 0.007 0. ** for 1% significance.029 0.028 Capital Expenditure 1.010 0.103*** 0.022 0.135*** 0.084*** 0.003 -0.000 0.093*** 0.140*** -0.008 0.013 -0.123*** 0.003 Financial Closely Held Dependence Shares log (Assets) Cash/ Total Antidirector x Assets Legal GDP per capita Stock Market Cap / GDP Fixed/ Total Assets SEC Compliance Assets/ Liabilities Leverage Tobins Q Total Sales Corporate Governance Score Sales Growth Financial Dependence Closely Held Shares Log(Assets) Cash/Total Assets Antidirector x Legal GDP per capita Stock Market Cap / GDP Fixed Assets/Total Assets SEC Compliance Assets/Liabilities Leverage Tobins Q Total Sales 2yr Sales Growth PE Ratio Price-to-book ratio Quick Ratio Return on Assets R&D Intensity Capital Expenditure Cash/Dividends 3yr Dividends Growth 5yr Income Growth 5yr Sales Growth Short-Term Debt 5yr Assets Growth Total Debt 1.038** 0.001 0.032 -0.004 1.013 -0.013 Total Debt 2yr Sales Growth PE Ratio Price-to-book ratio Quick Ratio Return on Assets R&D Intensity Capital Expenditure Cash/Dividends 3yr Dividends Growth 5yr Income Growth 5yr Sales Growth Short-Term Debt 5yr Assets Growth Total Debt 1.021 0.008 0.349*** 0.027 0.034* 0.009 0.004 0.020 -0.028* 0.115*** -0.024 -0.006 -0.024 -0.065*** -0.033** 0.001 -0.227*** -0.020 0.003 -0.003 -0.023 -0.013 -0.004 -0.025 -0.724*** 1.001 0.152*** 0.000 0.005 0.956*** 0.019 0.000 0.048*** -0.011 -0.004 0.015 -0.025 0.005 -0.053*** -0.075*** -0.017 -0.060*** -0.066*** 0.716*** 0.106*** -0.243*** 0.108*** 0.028* 0.005 0.923*** 0.073*** 0.000 -0.078*** -0.015 -0.001 -0.002 0.008 -0.038** -0.046*** 5yr Income Growth 1.009 0.067*** 0.
225. Antidirector x Legal captures the interactions of the Revised Antidirector Rights Index and the Rule of Law in that coutnry.261 13.718 10.615.129.20 21 1.300.2 126.50 20.302.801.00 -2.80 103.9 46.367.105.013 13.10 114.5 42 171.4 378.70 -808.2 6 53 Median 50.296 15.262 15.2 0.3 0.2 0 0 0 0 0 -1.5 2.4 27.10 5.50 Observations 15.4 0.093 14. closely held shared (as a percent of total shares).Panel C: GRI Variable Descriptions This table displays the summary statistics for the variables in the Global Reporting Initiative (GRI) dataset. The following firm variables include the observable firm characteristics included in previous studies (sales growth.2 0.60 0.1 St.2 50.1 67.7 56.3 1.8 9.9 2.4 0 3.5 1.196.1 4.8 0.114.1 28. The next three variables are the three observable country characteristics used in our analysis.3 3. It is for this reason that the mean GDP per capita differs so dramatically from the mean GDP per capita in Table 1 where emerging economies create a lower overall average statistic.090.4 0 15.7 195 1.267 12.734.4 5.80 184.1 1.00 Max 100 100 481.6 1.50 230 158.7 8.695 13.9 0.6 330.00 413.9 5.6 35.954 13.6 24.7 905. and cash-to-assets ratio.30 1.088 13.451 11.200.1 0.004 15.204 11.602 14.8 32.490.40 0 -594.7 9.2 29.390 15.10 -100 0 -1.9 15.8 11.079 12.804 14.1 1.134 15.60 13.8 38.7 -4 32.280 15.452.40 626.5 4. The first two variables reported below are the two corporate governance scores awareded to firms.772 14.1 0.2 0.267 14.7 47. 28.1 31.6 0.336 11. financial dependence (EBITDA based).70 617 1 1 67.280.399 12.515.00 1 123.526.00 299.267 13.20 Min 0 0 -1.8 4.095 14.10 3.8 28.624.905.2 50.728. Variable Index Corporate Governance Quotient Industry Corporate Governance Quotient 2yr Sales Growth Financial Dependence Closely Held Shares Log (Assets) Cash/Total Assets Antidirector x Legal GDP per Capita Stock Market Cap/GDP Fixed Assets SEC Compliance Current Ratio Leverage Tobin's Q Foreign Sales 1yr Foreign Sales Growth SEC Compliance PE Ratio Price-to-Book Ratio Quick Ratio Return on Assets R&D Intensity Capital Expenditure Cash/Dividends 3yr Dividends Growth 5yr Income Growth 5yr Sales Growth Short-Term Debt 5yr Assets Growth Total Debt Mean 50.3 0 1.037 14.760.3 0 -2.9 4.8 -1.5 1.1 1.3 917.833.1 0.5 573.6 21. Dev.7 0.362 .8 8.4 0 -26.5 -536.7 6.7 62.8 0.261 10.992 15.044.1 1.1 6.30 6.9 4.3 4.9 5.1 -76.50 9.3 139.390 14.499 13.205.717.515.292.2 0 1.3 1.4 23. The remaining variables described below are additional observable firm characteristics used to capture the complex interaction between firms and corporate governance in emerging economies. GRI tracked corporate governance behavior of rms around the world from 2003-2009.8 8.9 29 8.8 7.1 6.00 -100 -100 -100 0 -61.8 4.60 99.7 15. but mostly in developed economies.3 2.035.8 29.032.3 1.90 25.60 87.1 28. log(assets).
014* 0.015 1.013 -0.006 -0.021** SEC Compliance 0.005 -0.001 -0.001 0.014 0.006 0.012 0 0.016* 0.069*** -0.020** -0.027*** 0.003 0 -0.004 0.002 -0.037*** 0.462*** 0.000 -0.005 -0.085*** -0.015* -0.100*** 0.012 0.013 -0.003 -0.007 -0.002 0.026*** -0.Panel D: GRI Variable Correlations The following table displays the correlations among the variables in the Global Reporting Initiative (GRI) dataset.347*** 0.034*** -0.026*** 5yr Income Growth 0.002 -0.077*** -0.031*** -0.183*** -0.051*** 0.022** 0.001 -0.126*** 0.0211** -0.092*** -0.022*** -0.141*** 0.008 -0.003 0. Index Corp Gov Industry Corp 2yr Sales Financial Closely Held Log Cash/ Total Antidirector GDP per Stock Market SEC Current Tobin's Foreign Quotient Gov Quotient Growth Dependence Shares (Assets) Assets x Legal capita Cap/ GDP Fixed Assets Compliance Ratio Leverage Q Sales Index Corporate Governance Quotient 1.003 1.001 0.014 -0.018* 0.123*** -0.000 -0.000 SEC Compliance 0.055*** 0.012 0.000 Current Ratio -0.090*** -0.011 -0.030*** 0.003 0.003 -0.015* 0.025*** 0.000 Cash/Total Assets -0.007 0.007 -0.001 0.087*** 0.005 0.022** 0.897*** 1.0242** -0.000 0.016* -0.067*** -0.023*** -0. Variables below were used in the analysis of GRI data on corporate governance behavior of firms around the world from 2003-2009.000 0.001 -0.000 0.033*** -0.003 -0.003 0.001 -0.070*** 0.040*** 0.012 0.066*** 1.009 0.030*** -0.005 -0.006 -0.089*** 0.009 -0.009 0.037*** 0.399*** -0.972*** -0.016* -0.012 0.017* -0. The two scores allow us to run two sets of analyses on the GRI data.003 0.009 -0.001 -0.066*** -0.011 -0.058*** Return on Assets 0.221*** -0.003 -0.032*** 0 0.204*** 0.024*** 0.091*** -0.038*** 0.003 0.008 -0.026*** -0.015* -0.012 -0.378*** -0.006 0.006 -0. the two corporate governance scores issued by GRI.006 0.039*** 0.046*** 0.059*** 0.003 -0.198*** -0.107*** -0.014* 0.021** 1.028*** -0.025*** 0.003 -0.022** -0.000 -0.046*** 0.446*** 0.010 0.032*** -0.060*** -0.081*** 0.029*** 0.009 0.014* 0 0.073*** -0.005 -0.005 1.229*** 0.042*** -0.019** 1.006 -0.032*** -0.215*** 0.024***-0.004 0.064*** -0.003 0.065*** -0.029*** 0.018** 0.145*** 0.014 -0.535*** -0.063*** 0.001 -0.002 -0.002 -0.032*** 0.006 0.043*** 0.185*** 0.157*** 0.006 PE Ratio Price-to-Book Return on Ratio Quick Ratio Assets R&D Intensity Capital Expenditure Cash/ Dividends 3yr Dividends Growth 5yr Income Growth 5yr Sales Growth Short-Term 5yr Assets Debt Growth Total Debt 1yr Foreign Sales Growth SEC Compliance PE Ratio Price-to-Book Ratio Quick Ratio Return on Assets R&D Intensity Capital Expenditure Cash/Dividends 3yr Dividends Growth 5yr Income Growth 5yr Sales Growth Short-Term Debt 5yr Assets Growth Total Debt 1.193*** 0.000 Leverage 0.007 -0.019** 0.010 0.922*** 0.071*** 0.123*** -0.070*** -0.007 0.283*** -0.003 -0.001 0.008 3yr Dividends Growth -0.000 0.003 1.045*** 0.007 0.002 0.022*** -0.109*** 0.387*** 0.009 0.013 0.033*** 1.030*** 1.032*** 0.025*** 0.174*** -0.019* 1.034*** 0.000 SEC Compliance 1.014 0.005 0.254*** 0.002 0.037*** 0.032*** -0.123*** -0.005 0.090*** 0.080*** -0.004 0.018** -0.041*** -0.083*** 0.014 0.237*** -0.000 Log (Assets) -0.107*** 0.001 0.014 R&D Intensity 0.014 -0.142*** 0. As can be seen below.053*** 0.020** 0.011 0.019** -0.133*** 0.043*** 0.011 -0.013 0 0.115*** 0.440*** 0.099*** 0.008 Price-to-Book Ratio -0.009 -0.010 -0.014 0.128*** 0.000 0.0179** 0.007 -0.002 0.357*** 0. Correlations are marked with an * for 5% significance.013 -0.184*** -0. and *** for 0.0178** 0.011 -0.000 Tobin's Q 0.060*** 0.294*** 0.013 0.077*** -0.006 0.001 -0.000 2yr Sales Growth -0.014 0.011 -0.031*** Cash/Dividends -0.002 0.000 1.002 -0.001 1.015* 0.015* -0.001 0.000 1.252*** 1.001 0.009 -0.050*** 0.011 0.029*** -0.087*** 0.000 Stock Market Cap/GDP 0.066*** -0.100*** 0.1% significance.002 -0.009 1.018* -0.002 -0.091*** -0. ** for 1% significance.003 0.000 Closely Held Shares -0.006 -0.036*** 0.006 0.000 Financial Dependence 0.933*** 1.009 0.001 -0.022** 1.008 -0.004 -0.025*** -0.201*** PE Ratio -0.040*** -0.012 0.054*** 5yr Sales Growth 0.131*** 0.000 0.161*** -0.005 -0.033*** -0.062*** 0.007 -0.000 Industry Corporate Governance Quotient 0.004 -0.003 0.027*** -0.000 1yr Foreign Sales Growth -0.008 0.026*** 0.013 0.154*** -0.007 -0.005 0.000 -0.009 -0.028*** -0.055*** 0.000 Antidirector x Legal 0.064*** 0.001 -0.023*** -0.001 -0.046*** 0.007 -0.011 -0.077*** -0.016 -0.030*** 0.003 -0.013 -0.031*** 1yr Foreign Sales Growth 1.036*** -0.030*** -0.033*** 0.038*** -0.001 -0.000 0.060*** 0.000 -0.005 -0.022** -0.028*** 0.005 -0.004 0.003 0.014* 1.056*** 0.057*** -0.000 0.048*** Total Debt -0.003 0.071*** 0.010 0.011 -0.015* 0.001 0.011 -0.015* -0.012 -0.003 0.027*** 0.003 0.144*** 0.000 .049*** 0.006 -0.027*** Short-Term Debt 0.025*** -0.055*** 0.000 -0.108*** 0.533*** 1.312*** 0.037*** 1.053*** 0.017* -0.011 -0.169*** 0.000 Fixed Assets -0.078*** 0.273*** 1.029*** 0.079*** 0.036*** -0.010 -0.008 0.055*** -0.001 0.006 -0.007 0.017* 0.004 0.010 -0.000 Foreign Sales 0.005 0.026*** 0.077*** -0.063*** 0.018** -0.000 0.013 -0.000 0.001 0.003 0.005 0.000 0.006 0.043*** 0.204*** 0.048*** -0.096*** 0.006 0.188*** 0.001 -0.003 -0.137*** -0.649*** -0.000 0.000 -0.014 -0.033*** 0.017* 0.014 -0.003 0.0216** 1.030*** 0.006 -0.000 -0.0192** 0.176*** 0.027*** 0.476*** 0.212*** 0.087*** 0.007 -0.082*** 0.064*** -0.003 0.013 -0.054*** -0.242*** -0.004 -0.011 -0.044*** 0.056*** -0.086*** 1.002 -0.001 -0.002 Capital Expenditure 0.045*** -0.012 -0.023*** 0.010 -0.002 1.004 -0.046*** 0.012 -0.107*** 1.004 0.005 0.038*** -0.000 0.001 0.031*** -0.005 0.018** -0.115*** 1. the Index Corporate Governance Quotient and the Industry Corporate Governance Quotient are highly correlated but not identical.003 -0.001 Quick Ratio -0.016* 0.100*** 0.007 -0.396*** -0.001 -0.000 GDP per capita -0.058*** 5yr Assets Growth 0.124*** 0.004 0.016 -0.111*** 0.019** -0.
227) -0. we analyze years. this shows that countries explain 26.083 (0.97 53. In Panel A there are the OLS and xtmixed models.631 0.276) 9. The third are fixed effects to capture unobservable firm characteristics.002 (0.445 0.002 -0.144 *(7)* OLS *(8)* OLS 0.002) -0.190 0.206 0.668) 9.000) (0.the first is the original set of observable firm characteristics used in previous analyses.003) (0.4% of variance and firms explain 37.212 0. which are nested within years.606 0.004) yes yes yes yes yes yes yes yes *(2)* OLS 2.477 -0. Independent Variables Sales Growth Financial Dependence Closely Held Shares log(Assets) Cash/Total Assets Antidirector x Legal GDP per capita Stock Market Cap/GDP Expanded Firm Variables Year FE Country FE Firm FE Observations R² Adjusted-R² Additional Adjusted-R² Country Random Effect Firm Random Effect Residual Panel B: Nested Anova Results for CLSA Emerging Economies Only Additional R ² 7.000 -0.223 0.191 (0.896) 2.458) (0.116 -0.021 (0.000 0.129) Source of Variation Year Country Firm .792 (0.195) -3.026) (0.034) -0.000** -0.05) -1. which allows for the hierarchical nature of the country and firm data.573) 2.81% 11.38 (0.001) -0.Table II The tables below show the coefficient estimates from the CLSA corporate governance ratings for emerging economies only.89 (1. The regressions below explore the relative importance of countries and firms in explaining corporate governance ratings of firms in emerging economies.002 (0.4 yes 3763 3635 8.009* (0. and *** for 0.271) 9. The second is more inclusive and adds 17 additional observable firm characteristics to capture any firm effect not previously accounted for.133 0. ** for 1% significance.125 0.3%.21 *(1)* OLS Panel A: OLS and xtmixed Results in CLSA Emerging Economies Only *(3)* *(4)* *(5)* *(6)* OLS OLS OLS OLS -0.031 0. Xtmixed model specifications include random effects. enabling us to do a single regression and analyze the importance of firms and countries.41 7.001 0.001 0.744 0. and then dividing firm and country variances by the total.222 0.225 (0.641 (9.005) (0. The results in Panel B confirm those found in Panel A. The Anova models similarly capture unobservable firm characteristics.355* 0. countries explain 5. Including fixed effects and observable characteristics. We run three sets of firm variables .055* -0.4% of the variance and firms explain 41%.531 (1. and then add firm effects. Correlations are marked with an * for 5% significance.635 0. then add country effects.59% 11.372) (0.1% significance.003) (0.130 0.210 (3.052 1.41 *(9)* xtmixed *(10)* xtmixed yes 3. In the random effects.151) (0.075 -9.062 (0.635 0.06 3.796 0.193) -0. Firms explain more ratings variance than countries.008 0. In model 10.137) Additional Adjusted-R ² 7.08 (0.635 0.000) (0.0782 yes yes yes 3.014 782 0.000) 0.430) -0. xtmixed.573) -0.364 (0.080 0.012) -0.921 (0.000 (0.005) (0. Because firms are necessarily nested within countries. adding them.01 (0. models the amount of ratings variance explained can be found by first squaring both firm and country standard deviations to get variances.107** 1.785) 7.562) 9.736** 1. Looking at observed characteristics.514 (3. The OLS models include different combinations of observable firm and country characteristics as well as observable firm and country fixed effects.013) yes yes yes yes 782 0.000 (0.000) (0.230 0.695 -0. in Panel B there are the nested Anova results.2% of the ratings variance while an inclusive set of firm characteristics explains slightly more variance at 6%.744 0.379) (0. countries now explain 14.128 2.48 41.060** (2.985) (5.730 0. The results in Panel A below show that firm characteristics generally explain more corporate governance ratings variation than country characteristics.
009) (0.000 0. All four of these panels are intended to explore the relative importance of countries and firm in explaining governance ratings in emerging economies. In Panel A.748 0. In Panel B.194 0.001** -0.026 -0. Panel A uses both OLS and random effects regression to look at the indexweighted corporate governance quotient. similarly to the CLSA data.400 -7. Looking at unobservable characteristics with fixed effects.149) (1.005 -0.3% while countries account for 11% of variance.00730 (0.Table III These tables show the regression results on the corporate governance scores using GRI emerging economies data only.000) (0.9% in Panel A. Panel A: OLS and xtmixed Results for GRI Emerging Economies Only . and *** for 0.740 Additional Adjusted-R² 0.269 5.001) (0.0170) Expanded Firm Variables yes yes Year FE yes yes yes yes yes yes yes yes yes Country FE yes yes yes yes Company FE yes yes Observations 1.022 (0.592 2. Panel B again uses OLS and xtmixed but to look at the industry-weighted corporate governance quotient.331) (0. and Panel D looks at the industry-weighted corporate governance quotient using Anova.162 0.650) (1.041** 0.809) (1.170 0.514 13.765) (0.8% in Panel B).313 0.012) (0.385+ -3.08) (0.167 0.361 0.07) (0.011) (0.413 1.193) (0. The random effects results in Model 10 suggest that firm effects are anywhere from somewhat to significantly larger than country effects.000) (0.329 0.241 0. Correlations are marked with an * for 5% significance.007) (0.648) (13.635 (0. Anova results in Panels C and D exhibit the same pattern of firms explaining substantially more variance than countries.03) (0.81 (9.7% in Panel B) than countries explain (14.001** 0.75) Antidirector x Legal -0. the full set of observable firm characteristics explains 2-3 percentage points more than country characteristics in model 2.416) GDP per capita 0.077 -0. Panel C looks at the index-weighted corporate governance quotient using Anova. we see that firms again explain more variance (37.007 -0.81) (21.379 Country Random Effect 10. 11.822 (0.Index Weighted Score Independent variables *(1)* *(2)* *(3)* *(4)* *(5)* *(6)* *(7)* *(8)* *(9)* *(10)* OLS OLS OLS OLS OLS OLS OLS OLS xtmixed xtmixed Sales Growth 0.262 0.910) (1.8% of the variance while country random effects account for 28.605 (4. firms are nested within countries which are nested within years.992) (1.365 (0.003 0. so we proceed successively.413 R² 0.002 0.292 748 351 1.038** -0. in addition to observable characteristics using specific variables.152) Cash/Assets 2.0374* (0. firms account for 50.055) (6.095 -0.00199+ (0. In models 4 in Panel A and B.094 (0.227 0.992 11.103) Firm Random Effect 13.0266) Financial Dependence 0.219 0.843 Adjusted-R² 0.000) (0.649) (6.00106) Stock Market Cap/GDP -0.685) Residual 15. ** for 1% significance.413 351 1.035 -0.337 0.249 0.346 0.141 3.268) . The results below show that firm characteristics explain anywhere from roughly statistically equal to significantly more of the ratings variance than country characteristics do in emering economies.413 1.013 0.035** -0.031* 0.114 (0.292 1.428 -0. firm random effects account for 37.0970) Log (Assets) 0.115) (4.266 0.006) (0.566 12.372 0.1% significance. evaluating the additional contribution to ratings variance explained by each category.799** 7. As well.413 1.5%.528) Closely Held Shares -0.326 -24. 44.675 0.5% in Panel A.
511 (1.06) (15.255 0.073 748 0.791) -0.208 0.72 40.407 yes 1.62 Additional adjusted R² 14.067 -0.215 2.079) -19.006) (0.237 0.279) Source of Variation Year Country Firm Source of Variation Year Country Firm .49% 12.111** (0.931) (1.265 0.438 *(9)* xtmixed *(10)* xtmixed yes 1.Industry Weighted Score Additional Ordinary R² 14.Index Weighted Score Additional R ² 17.171) (0.035** -0.413 1.000) (0.712) 9.536 (0.194 -0.716) (1.774 (2.988 (2.003 0.095 -0.011) (0.000) -0.944 (0.001) 0.019 351 0.027) 1.024 *(8)* OLS -0.717) -0.014) yes yes yes yes yes 1.75) -0.028) 0.023+ (0.292 0.294 0.306 0.555 1.09 Additional Adjusted-R ² 16.662 0.074) (0.033+ (0.017 (0.197) (1.000) (0.001** 0.61 (24.154 yes yes yes 1.213 0.593) 15.413 0.735 0.54 40.413 6.005 0.019) yes yes yes yes 351 0.743) 13.001** (0.*(1)* OLS Sales Growth Financial Dependence Closely Held Shares Log (Assets) Cash/Total Assets Antidirector x Legal GDP per capita Stock Market Cap/GDP Expanded Firm Variables Year FE Country FE Company FE Observations R² Adjusted-R² Additional Adjusted-R² Country Random Effect Firm Random Effect Residual Panel B: OLS and xtmixed Results for GRI Emerging Economies Only .054 (0.13% 11.331) Panel C: Nested Anova Results for GRI Emerging Economies Only .17 43.466 (6.99 Panel D: Nested Anova Results for GRI Emerging Economies Only .000 0.177) 0.084 (0.218 0.302 0.083) 0.664 (6.413 0.18 47.115 yes yes 1.007) (0.726 -4.74) 14.292 0.020 (0.044** 0.000 0.009) (0.Industry Weighted Score *(2)* *(3)* *(4)* *(5)* *(6)* *(7)* OLS OLS OLS OLS OLS OLS 0.143 0.054) (1.086 (1.001) (0.06% 16.413 0.190 2.105 (0.737 0.004 (0.140 1.034** -0.44) 9.002* (0.200 (0.803) 15.840 0.53 6.71% 16.883) 0.097) 6.724 (10.
respectively) explain roughly three times the variance explained by firms (9.000** -0.82** 9. we see that countries again explain more variance (55.210** -0.106) (0.5%.015) (0.Index Weighted Score Independent variables *(1)* *(2)* *(3)* *(4)* *(5)* *(6)* *(7)* *(8)* *(9)* *(10)* OLS OLS OLS OLS OLS OLS OLS OLS xtmixed xtmixed Sales Growth -0.165** 0. so we proceed successively.977 13.174** -0.01) (0. All four of these panels are intended to explore the relative importance of countries and firm in explaining governance ratings in developed economies.014 (0.231) Residual 15. respectively.794 Adjusted-R² 0.004** (0.002** -0.000) (0.046) Antidirector x Legal 7.043** -1.558 0.001) Stock Market Cap/GDP 0.41** (0.779 13.051) Log (Assets) 0.1% and 18.8% in Panel B).017) (0.029 (0.672 (0.977 R² 0. 57% in Panel B) than firms explain (17.987+ -9.023) (0.382 0.1% in Panel A.7%. The random effects results in Model 10 echo these results.1% in Panel A and B.768 0.977 4.195) (8. evaluating the additional contribution to ratings variance explained by each category.732 (0.470 0.285) (0. Correlations are marked with an * for 5% significance.728 Additional Adjusted-R² 0.445+ -12.416 0.016) (0.56 0.827) (5.171 Country Random Effect 18.639* -0.024 (0. Panel A uses both OLS and random effects regression to look at the index-weighted corporate governance quotient.562 0.9% and 40.413) GDP per capita -0.774) Firm Random Effect 11.03) (0.001 0.303) (0.468 13.016) Cash/Total Assets 11.868 15.089 0.335** 6.016) (0.779 7.105) .015) (0.008 0.016 -0. and Panel D looks at the industry-weighted corporate governance quotient using Anova.473 4.262 (2.559 0.000) (0.Table IV These tables show the results regressions on the corporate governance scores using GRI developed economies data only.777) (2. In models 4 in Panel A and B countries (36. while firms explain 19.459) (2. Panel C looks at the index-weighted corporate governance quotient using Anova. The results below show that country characteristics explain substantially more governance ratings variance than firm characteristics in developed economies. Looking at unobservable characteristics with fixed effects in addition to observable characteristics using specific variables in Models 6 and 8.804 (0.38 0.212** -0.000) (0.230 2.022) (0.977 13.155 0.468 13. similar to Tables 5 and 6.231) (0.548) (0.208** 6.680 11. As well.015 (0. and *** for 0.175** 0.033 0.8% and 8.081 18.8% in Panel A.474 0. firms are nested within countries which are nested within years.769) (2.012 0. Anova results in Panels C and D exhibit the same pattern of countries explaining more variance than firms. ** for 1% significance.561 0.000) (0.032* 0.002** 0. 15.000 -0.017) Closely Held Shares -0.028) Expanded Firm Variables yes yes Year FE yes yes yes yes yes yes yes yes yes Country FE yes yes yes yes Company FE yes yes Observations 13.381 0.002** -0. Panel B again uses OLS and xtmixed but to look at the industry-weighted corporate governance quotient. Countries explain 46% and 48.000) (0.1% significance.3%).557 0.019) Financial Dependence 0.114 (2.977 13. Panel A: OLS and xtmixed Results for GRI Developed Economies Only .001 0.712 0.444) (0.414 0.
021 (0.021) (0.977 13.07% 55.000) (0.727 0.526** 6.571 0.*(1)* OLS Sales Growth Financial Dependence Closely Held Shares Log (Assets) Cash/Total Assets Antidirector x Legal GDP per capita Stock Market Cap/GDP Expanded Firm Variables Year FE Country FE Company FE Observations R² Adjusted-R² Additional Adjusted-R² Country Random Effect Firm Random Effect Residual yes 13.448 (0.346** 6.323* (0.573 0.473 4.977 18.438) (0.574 0.445) (1.977 4.016) (0.39** 8.015) (0.053) 0.226) 15.000) (0.569 (2.003** (0.52 Additional Adjusted-R ² 0.529) (0.018) 0.489 0.022) (0.13 20.569 0.015) (0.468 13.001 Panel B: OLS and xtmixed Results for GRI Developed Economies Only .017 -0.593 (2.000) (0.284) (0.08 15.000** -0.92 Panel D: Nested Anova Results for GRI Developed Economies Only .002** -0.925) 7.745) (2.328) -0.002** -0.205** -0.060) (7.Index Weighted Score Additional R ² 0.723 0.005 (0.06% 57.228 -11.103) Source of Variation Year Country Firm Source of Variation Year Country Firm .75** (0.418 0.295) (0.008 (0.572 0.Industry Weighted Score Additional R ² 0.183** -0.10% 57.190** 0.418 0.001 0.25 18.843) 11.779 7.258+ -11.977 13.226) 15.973) 12.488 (0.57 0.017) (0.9 20.793 0.11% 55.779 13.455 0.001) 0.169 4.036 0.454 0.026) yes yes yes yes yes yes yes yes yes yes yes yes yes yes yes 13.103) Panel C: Nested Anova Results for GRI Developed Economies Only .027) (0.002** -0.85 15.000 -0.604 (0.417 0.977 0.000) (0.071 0.308** -1.018 -0.019) -0.000) (0.576 (0.468 0.777 0.02 0.021 (0.154 *(9)* xtmixed *(10)* xtmixed yes 13.047** 0.235** -0.492 0.975** 0.011) (0.Industry Weighted Score *(2)* *(3)* *(4)* *(5)* *(6)* *(7)* *(8)* OLS OLS OLS OLS OLS OLS OLS -0.014) (0.153 0.84) 11.779) (5.14 (2.46 Additional Adjusted-R ² 0.177** 0.
001 -0.163 0.003) -0. Firms explain more ratings variance than countries.871 0.8%. firms explain 32.211 (0.35% 3. these results are limited given the small number of emerging economies in the FTSE dataset.471 0.022 Log (Assets) -0. ** for 1% significance.03 0.003) -0.012 (0. The second is more inclusive and adds 17 additional observable firm characteristics to capture any firm effect not previously accounted for.390) -0.262 0.976* 8. then add country effects.042) (0. firms explain more of the ratings variance than countries do.363*** 0. we can see that when we just look at unobservable firm characteristics captured in the firm fixed effects in Model 7. We could not make strong conclusions based on Models 4 and 8 due to the small sample size.208 0.29 Firm 44. Panel A: OLS and xtmixed Results for FTSE Emerging Markets Only Independent variables *(1)* *(2)* *(3)* *(4)* *(5)* *(6)* *(7)* *(8)* *(9)* *(10)* OLS OLS OLS OLS OLS OLS OLS OLS xtmixed xtmixed Sales Growth 0.568 (0. However.1% significance.541) -6.022 0.000 (-0.209 0. which allows for the hierarchical nature of the country and firm data.521 (0. In Model 10. which are nested within years.255 Closely Held Shares -0.464** 5.017 0.000** 0.021) Panel B: Nested Anova Results for FTSE Emerging Economies Only Source of Variation Additional R ² Additional Adjusted-R ² Year 4.000) (0.003 0.167) (0.628 (0.47 16.213 0. Our random effects model also gives us reliable results.004 (0.001) (0.17 -0.the first is the original set of observable firm characteristics used in previous analyses.667 0.000) (0. Xtmixed models specifications include random effects.199) (3.5% of the ratings variance.390 0.166) Firm Random Effect 0.353 (0. Unobservable country characteristics explain 16. The third are fixed effects to capture unobservable firm characteristics.041 Antidirector x Legal 0.001 (0. We run three sets of firm variables .187 0.527 Additional Adjusted-R² 0.217 0.506 0.211 (0. we analyze years.002** -0.138) (0. from the other models with larger sample size.Table V The tables below show the coefficient estimates from FTSE corporate governance ratings for emerging economies only. There are still some conclusions we can gather.044 0.2 .001) -0.001) (0.001 Expanded Firm Variables yes yes Year FE yes yes yes yes yes yes yes yes yes Country FE yes yes yes yes Company FE yes yes Observations 607 607 354 38 607 607 607 38 607 607 R² 0.663 1 Adjusted-R² 0.207 0.016 -0.722* (0.365 Cash/Total Assets 0.014) -0. still.001 0.3% of ratings variance and country random effects account for 15. In Panel A there are the OLS and xtmixed models. in Panel B there are the nested Anova results.000 -0. Because firms are necessarily nested within countries. The regressions below explore the relative importance of countries and firm in explaining corporate governance ratings of firms in emerging economies.243 GDP per capita -0. firm random effects account for 34.041) Residual 0.216 0. and *** for 0.202 0.99 32. enabling us to do a single regression and analyze the importance of firms and countries.021) -0.355 0.168 0.3%.000 Stock Market Cap/GDP -0. The results in Panel B confirm those found in Panel A.000** -0.039 0.325 Country Random Effect 0. These emerging economies are defined as those countries not a member of the OECD by 1990. Specifically.88% Country 16.023) (0.011 Financial Dependence 0.05) -0. and then add firm effects. The results in Panel A below show that for emerging economies in the FTSE data. Correlations are marked with an * for 5% significance. The Anova models similarly capture unobservable firm characteristics.
Correlations are marked with an * for 5% significance. which allows for the hierarchical nature of the country and firm data.4% of ratings variance.109 (0.7% of ratings variance while firm random effects account for only 24.002 (0.322) Antidirector x Legal 0.000) (0.001) (0.262) Cash/Total Assets 0.004) (0.001) (0.131 Country Random Effect 0.001) Closely Held Shares -0.10% Country 65.027) (0.595 0.86 Adjusted-R² 0. and *** for 0.656 0.004) Panel B: Nested Anova Results for FTSE Developed Economies Only Source of Variation Additional R ² Additional Adjusted-R ² Year 0. countries explain more of the ratings variance than firms do.001 (0.604 0.47 Company 22. countries explain 65. In contrast to the FTSE emerging market data.017) (0.054) (0.595 0.378*** 0.569 0. In Panel A there are the OLS and xtmixed models.519 0.005*** 0.000*** 0.01) Residual 0.003) Expanded Firm Variables yes yes Year FE yes yes yes yes yes yes yes yes yes Country FE yes yes yes yes Company FE yes yes Observations 9.001) (0. Panel A: OLS and xtmixed Results for FTSE Developed Economies Only Independent variables *(1)* *(2)* *(3)* *(4)* *(5)* *(6)* *(7)* *(8)* *(9)* *(10)* OLS OLS OLS OLS OLS OLS OLS OLS xtmixed xtmixed Sales Growth -0.01) (0.000*** 0.357*** 0. The Anova models similarly capture unobservable firm characteristics.036*** 0.026%.121 9.701 9.003) Log (Assets) 0.763 (0.971 1.121 9.162) GDP per capita -0.576 0.007*** 0.1% significance.306*** 0.005*** 0.007** (0.Table VI The tables below show the coefficient estimates from FTSE corporate governance ratings for developed economies only. The regressions below explore the relative importance of countries and firm in explaining corporate governance ratings of firms in developed economies.001) (0.659 0. We run three sets of firm variables .052*** -0.519 (0.000) Stock Market Cap/GDP 0. and then add firm effects. countries explain 59.000) (0. we see that country random effects account for 52. Countries explain more ratings variance than firms in developed economies.001*** (0.655 0.000) (0.594 0. The results in Panel A below show that for developed economies in the FTSE data.504 0.001 0. enabling us to do a single regression and analyze the importance of firms and countries. When we add in unobservable firm and country characteristics with fixed effects.114) (0.239*** 0.019) (0. then add country effects.14% 0.000 (0.762 0.881 0.834 0.002) Financial Dependence -0.001) (0.004) (0.000*** -0.786 Additional Adjusted-R² 0.654 0. their sample size was much larger and all models yield reliable results.001) (0.000*** 0.54 65.000) (0.59 .000*** -0.001 -0.000 0. Because firms are necessarily nested within countries.026 0. The results in Panel B confirm those found in Panel A. In Model 6. Xtmixed models specifications include random effects.008) (0. in Panel B there are the nested Anova results. countries explain even more.605 0.112 1.001 0.27 17.414** (0. these results are not limited. ** for 1% significance.112 9.7% of the variance while firms explain 13.009 -0. we analyze years.657 0. looking at random effects results in Model 10.112 4.179 0.1%. or nothing.121 R² 0.000) (0.008*** 0.701 9.001) (0. And finally.006*** -0.115) Company Random Effect 0. The second is more inclusive and adds 17 additional observable firm characteristics to capture any firm effect not previously accounted for.17) (0.4% of the ratings variance while firms explain -0. The third are fixed effects to capture unobservable firm characteristics. These developed economies are defined as those countries that were a member of the OECD by 1990.005*** 0. which are nested within years.272 (0.01) (0.503 (0.085 -0.658 0.000) (0.001 0.129 9.011) (0. Looking just at observable characteristics in Models 2 and 4.the first is the original set of observable firm characteristics used in previous analyses.000 0.
15 59.3 Luxembourg 29 50.05 46.6 Australia 696 41.3 0.7 Russia 2 59.886 91.885 23.387 83.164 54.8 Chile 17 47.381 53. their Index Corporate Governance Quotient.2 63.4 28.969 17.55 0 82.609 39. We chose to only look at the index-based score.709 Thailand 227 Panel B: CLSA Developed Economies Country Mean St.7 50.5 0.065 78 Australia 74 56. Median Min Max 25th Per 75th Per 63.2 62.638 66.294 15.883 15.411 12.2 Italy 500 28.214 13.084 65.188 59.05 63.126 43.6 18. The same pattern is visible in the CLSA data.926 38.6 60.6 42.2 15.5 Guernsey 5 39.965 71.7 40.5 2.107 62.4 41 64.525 6.1 90.5 68 Brazil 68 59.4 88.4 46.531 43.6 57.66 20.988 77 46.4 Ireland 118 43.3 36.94 9.9 67 72.5 Greece 286 76.55 1.05 9.1 47.6 82.6 42.7 23 58.73 13.3 Marshall Islands 5 50.459 69.6 4 76.6 73.1 India 641 41.042 50. again.558 0 97.243 40.4 85.77 12.194 43.082 22.525 10.625 4.2 92.596 58.4 34.1 14.654 61.646 51.2 0 100 77.1 Denmark 173 54.209 Malaysia 314 63.654 16.3 11.95 44.838 25.6 25.936 27.187 71.08 52.959 48.6 82.5 52. As can be seen in this set of statistics.1 South Korea 67 GRI Developed Economies Country Mean St.7 Finland 229 58.8 45.1 1.55 0. and span size.7 45 82.4 72.789 60.854 12.3 43 Pakistan 15 73.881 21.6 89.913 54.418 25.75 5.325 26.733 12. Looking at the CLSA statistics.9 34 50.929 Canada 7 57.859 73.752 59.7 22. we see that the developed economies have on average much higher scores overall.7 42 42.539 0 86.6 70.1 Austria 156 29.905 66.9 65.8 69.817 16.345 32.7 52.276 64.683 United Kingdom 32 55.767 50 0.9 78.135 70.4 57.536 89.17 16.3 98.1 38.5 47.64 47.078 7 0.163 11.15 1.8 35.3 60.5 Peru 3 50. Median Min Max 25th Per 75th Per 66.4 10.3 2. Median Min Max 25th Per 75th Per 59.08 2.501 30.65 6 99.6 0.042 51.8 2.75 86.135 26.217 17.2 Sweden 350 66.183 26. which composes the last two sets of statistics.887 86.6 99.3 Netherlands 319 58.2 44.6 2.566 54.595 38.41 61.423 18.05 79.2 83.1 72.997 New Zealand 2 80.2 14.35 0.334 50.1 97.6 64.5 60.6 53.034 54.8 69.5 73.9 71 45.7 15.7 44.5 66.2 1.607 8.5 10.223 43.6 82.1 United Kingdom 3022 .5 Philippines 117 40.7 49.886 91.5 99.905 0 84.155 Indonesia 184 58.24 76.524 12. Comparing the emerging and developed economies. as any trends in the country statistics should be visible in either score.6 Turkey 31 73.1 69.5 99 Liberia 5 63.Index CGQ Only Country Mean St.556 59.5 21.05 15.336 66.6 United States 29 Panel B: GRI Emerging Economies .4 46.337 15.5 100 28.4 70.8 Singapore 474 46.562 21.3 0 78.443 70.6 59.7 46. Dev.065 22.8 86.2 Norway 1 45.165 78.6 52.4 Jersey 7 77.878 51 45.7 7.35 42 42.3 34.304 Singapore 320 70.5 60.606 12.Appendix 1: Country Statistics This table presents the summary statistics for all countries represented in our dataset.938 7.5 53.9 37 Japan 4145 27.841 77.15 5. Dev.4 46.15 53.6 Switzerland 2 41.817 3.65 9.657 28. Panel A: CLSA Emerging Economies Country Observations Mean St.7 99.995 56.79 South Africa 59 53.289 59.709 83 36.386 86.44 3.812 60.2 Turkey 61 83. broken down by market type and by data.2 58.8 0.092 47.45 Hungary 5 52.4 99.649 0 81.2 93.781 61.7 Argentina 3 60.4 77.035 16.1 51.871 22.5 100 26.7 Canada 1320 28.55 Belgium 176 52.2 75. Dev.012 45. Portugal and Greece are outliers with scores in the teens.9 68.917 Japan 209 89.65 Gibralter 4 76.7 2.77 Hong Kong 740 51.9 Mexico 20 33.65 65.646 19.5 71.1 25.111 74.15 Hong Kong 660 39.35 0.7 70. the GRI developed economies observations span a number of countries and account for most developed economies.681 39.2 Portugal 96 36.565 Taiwan 500 61. specifically.44 12.8 13 60.95 19.4 67.162 57.75 93.1 51.787 25.7 47.648 88. to South America.341 58.3 Netherlands Antilles 9 42.74 4.3 72.626 45.333 93.607 15.3 Switzerland 411 27.5 Israel 10 69.4 51.868 67.7 Cayman Islands 47 69.5 68.7 18.5 71.399 South Korea 386 53.7 69.1 6.495 42.7 Spain 2 82.4 4.3 48 75 France 587 51.3 0.372 27.4 72. Median Min Max 25th Per 75th Per 62.7 55.616 32.162 47.7 39 74.146 22.058 27.9 93. Dev.7 2. The countries span geography.386 3.7 7.7 0. The next set of summary statistics presents GRI's index-based score's emerging economies observations.718 16.363 63.3 84.5 60.054 China 418 51.4 44.7 56.482 3.1 95.6 0 82.4 28.3 0. from Australia to Marshall Islands.047 91.15 New Zealand 124 30.096 48.862 4 79.9 51.9 Norway 173 14.4 8.7 95 24. The emerging economies GRI country means range from 28-54 and the developed economy GRI country means are generally in the 50's and 60's.658 30. we see that the developed economiess generally received higher corporate governance scores than the emerging economies did.45 76.6 66.405 22.3 81.9 99.24 76.97 59.432 55.1 63.228 21.1 99.147 22.55 44.1 99.282 16.511 11.9 Bermuda 113 59.902 7.8 2.1 100 49.458 23 0. from Europe to Asia. The first set of country statistics come from the GRI data.4 Czech Republic 3 59.6 Spain 375 40.925 6.3 69.6 82.4 100 54.376 19.1 57.555 15.463 61.1 99.593 86.8 Greece 3 57.766 88.973 13.989 59.6 66.8 53.85 Poland 5 22.254 26.489 18.93 70.7 30.743 54.209 53.659 63.6 Germany 631 16.75 43.4 (one observation) Colombia 3 42. The United Kingdom has the highest mean of 84.3 89.6 65.25 10.7 0.75 44.65 0.578 25.4 57.6 63.9 2 21.3 53.7 Panama 2 54.1 96.45 11.146 13.3 74.042 54.179 81.
116 0.011 0.230 0.628 0.196 0.2 Additional Adjusted-R ² 6. we see the entire sample of firms in emerging economies.005 0.78% 17.150 0.130 0.73% Additional Adjusted-R ² 1.156 0.383 *(8)* OLS yes yes yes yes 0. the importance of firm characteristics is greater than the country characteristics. Comparing all three samples on top of each other.32 39.071 0.4% Company=37.21% 0.06 0.2 .222 0.044 0.6 Country=26. Panel A explores the OLS and xtmixed results whiles Panel B and C looks at Anova models.687 0.125 0.158 0. And the bottom highlighted row show single market firms in emerging economies. The middle highlighted row shows multinations in emerging economies.212 0.Appendix 2 .4 0. Independent Variables Expanded Firm Variables Year FE Country FE Company FE R² Adjusted-R² Additional Adjusted-R² for All Firms Adjusted-R² for Multinationals Additional Adjusted-R² for Multinationals Adjusted-R² for Single Market Firms Additional Adjusted-R² for Single Market Firms Source of Variation Year Country Company Source of Variation Year Country Company *(1)* OLS yes *(2)* OLS yes Panel A: OLS and xtmixed Results *(3)* *(4)* OLS OLS yes yes yes *(5)* OLS yes yes *(6)* OLS yes yes 0.144 0.49% Company=32.155 0.3% Country=6.080 0.114 0. We determined multinationals by matching the firms in the CLSA data to firms listed in the Directory of Corporate Affiliations (DCA).169 -0.052 0. The table shows that regardless of whether we look at multinationals or single market firms in emerging economies.606 0.631 0. The random effects models suggest that firms are even more important in multinationals and that in single market firms countries are statistically equal to firms in importance.128 0.0782 0.190 0.69% Country=35.071 0.CLSA Multinationals Robustness Tests The models below explore the relative importance of firms and countries in explaining corporate governance variance and what impact multinationals firms have on this importance.055 0.1% Company=53. Multinationals were determined by whether or not they had subsidiaries.133 0.175 Panel B: Anova Results for Multinationals Additional R ² 1.195 *(7)* OLS yes yes yes 0.223 0.14% 3.246 -0.629 0.206 -0.41 0.383 *(9)* xtmixed yes 0.459 0.20% 18 51.014 0. we see that the results are roughly the same across the board.3 48.9 Panel C: Anova Results for Single Market Firms Additional R ² 7.014 0. Firms take on a greater importance in emerging markets regardless of whether they are multinationals or single market firms.649 0.266 0.52 62.796 0.730 0.125 0.044 0.111 0.311 0.529 0. In the top highlighted row of Panel A.
092** 0.145 0.017 (0.001** 0.113** 0.260 0.356 0.000) (0.348 (0.254 6.09** (0.040) yes yes yes yes 1.00) 2.354 0.832 0.129 0.670 0.811) -0.028) (0.000) (0.606 0.810 0.810 16.781) 13.023) (0.200** -0.097 (2.167 (0.350) 0.068) 3.382 0.071** 0. We test this by excluding these two markets together and compare our results to those for the full set of developed economies. and *** for 0.069 (3.544 (0.367 (4.28** 15.153 0.065) (0.447) (0.000 (0.944 (0. Thus.476) (0.355) 0.009 0.001** 0.810 0.471) 0.013 (0.009 (0.00424 6.969** 3.187 (2.037) 3.030 (0.737) 23.060) -0.016) (0.007 (0.Appendix 3 .166) .000) 0.377) 17.665) 15.513 0.12 (15.810 0.005 0.832 0.682** (0.168) 17.000) (0.193 *(9)* xtmixed 16.149 yes yes yes 6.810 6.174) *(1)* OLS *(2)* OLS *(7)* OLS *(8)* OLS -0.438 (0. Specifically.050) -0.001** -0. we can be confident that our trend is not driven by specific countries.046) 0.546 0.000 (0.037) yes yes yes yes 1.078** 3.030) -0.188** (0.810 0. and that this is especially true for the Index-based corporate governance quotient.172) *(10)* xtmixed Independent variables Sales Growth Financial Dependence Closely Held Shares Log (Assets) Cash/Total Assets Antidirector x Legal GDP per capita Stock Market Cap/GDP Expanded Firm Variables Year FE Country FE Company FE Observations R² Adjusted-R² Additional Adjusted-R² Country Random Effect Company Random Effect Residual 4.349 2.002 (0.659 0.832 0.034 (0. we can also see that removing these two countries does not change our finding about the importance of country characteristics in developed economies.200 0.262 0.004 (0.056** (0.240 (0. ** for 1% significance.252 *(7)* OLS *(8)* OLS -0.119** 0.376) 17.000) (0.659 0.697) -13.35 6.940 (0.030) -0.033) -0.78** 8.356 0.003+ (0.254** -0.810 6.05 6.096 0.026 (0. However.755** (0.073) 4.016) (0.GRI Developed Economies Except the United Kingdom and Japan The tables below examine the relative importance of firms and countries in explaining corporate governance in GRI developed economies.001) 0. Panel A gives the results for models using the Index-based Corporate Governance Quotient while Panel B gives the results for the Industry-Based Corporate Governance Quotient.031 1.006 (0.659 0.090) 2.159 0.610) (0.810 0.210 (2.623) -16.154 0.017 (0.214 0.398** 2.074) (11.659 0.432 (3.405) 18.023 (0.00526 (0.052) 0.263 0.000) 0.588) (0.126 0.028) (0.008 6. We see below that removing the UK and Japan weakens the importance of countries relative to firms.796) 14.253 *(9)* xtmixed *(10)* xtmixed 6.037) 3.314 yes 6.368 (0.028) -0.043 1.013) yes yes *(1)* OLS *(2)* OLS Panel A: OLS and xtmixed Results for Index CGQ *(3)* *(4)* *(5)* *(6)* OLS OLS OLS OLS 0.346 (0.325) (11.053 -0.245 (2.023) (0.000) (0.736 (4.087 yes yes yes 6.085** 0.987** 0.201 0.000182) 0.069+ (0.471) (0.254 yes 6.655 0.012 (0.810 17.000115 (0.704) -0.890 (16.000** -0.025 0.000) (0.708** 1.000* (0.076) (0.647 0.001) 0.0142) yes yes yes yes yes yes yes 3.709 (5.685 0.748) 21.1% significance.048 6.810 0.122** (0.207** (0.141) 0.196 0.028 (0.265 0.83) 1.510) 1. Correlations are marked with an * for 5% significance.013) yes yes 6.00 (5.000) 0.382 0.671) 15.832 0. these tables are intended to explore the importance of the United Kingdom and Japan in our developed economy results.353 0.568 0. Independent variables Sales Growth Financial Dependence Closely Held Shares Log (Assets) Cash/Total Assets Antidirector x Legal GDP per capita Stock Market Cap/GDP Expanded Firm Variables Year FE Country FE Company FE Observations R² Adjusted-R² Additional Adjusted-R² Country Random Effect Company Random Effect Residual Panel B: OLS and xtmixed Results for Industry CGQ *(3)* *(4)* *(5)* *(6)* OLS OLS OLS OLS 0.403) 17.000** -0.000** -0.432) (0.095 0.013) yes yes yes yes yes yes yes 3.129** (0.
However. Source of Variation Year Industry Country Firm Source of Variation Year Industry Country Firm Source of Variation Year Industry Country Firm Source of Variation Year Industry Country Firm Panel A: Index CGQ. We understand industry to be embedded within years.60% 12.9 30. again respectively.50% 14.8 Panel B: Industry CGQ. 2-digit SIC Codes Additional R² Additional Adjusted-R² 14. and firm.20% 11. 3-digit SIC Codes Additional R² Additional Adjusted-R² 14.10% 13 12. 3-digit SIC Codes Additional R² Additional Adjusted-R² 17. industry.60% 10. Panels C and D focus on the 3-digit SIC codes for the Index and Industry CGQ's.70% 9 9.70% 24.10% 16.9 11.50% 14. the models below include industry as an intermediate level of analysis. These tables are intended to explore whether our previous results that firms explain greater variance than countries in emerging economies is actually capturing industry effects. but crossing countries.70% 19. 2-digit SIC Codes Additional R² Additional Adjusted-R² 17.8 Panel D: Industry CGQ.40% 12.Appendix 4: GRI Emerging Economies Anova Results with Industry Included The tables below shows the coefficient estimates from the Anova models of GRI corporate governance ratings for emerging economies.10% 24. the main result holds even to the inclusion of industry effects: the importance of firm effects in explainin ratings variation is still larger than country effects.5 23 .70% 14. country.40% 19.1 10. respectively.4 19.5 29 Panel C: Index CGQ.4 22. What we see in the results below is that industry does capture some of the variation in corporate governance ratings. Panels A and B focuses on the 2-digit SIC codes for the Index and Industry CGQ's. so we proceed with the following hieararchy in our analysis: year.10% 14.8 33.10% 16.3 25.3 25. In contrast to previous emerging GRI economies results using Anova specifications.
3-digit SIC Codes Additional R² Additional Adjusted-R² 0.32% 4.87 18. We understand industry to be embedded within years.24% 3. the main result holds even to the inclusion of industry effects: the importance of country effects in explainin ratings variation is still larger than firm effects in developed economies. and firm.88 18.04% 12.45 51.74 13.57 Panel D: Industry CGQ.71 16.04% 11. Source of Variation Year Industry Country Firm Source of Variation Year Industry Country Firm Source of Variation Year Industry Country Firm Source of Variation Year Industry Country Firm Panel A: Index CGQ.58 12.08% 0.76% 54. Panels C and D focus on the 3digit SIC codes for the Index and Industry CGQ's.66 54.27% 9.79 50.Appendix 5: GRI Developed Economies Anova Results with Industry Included The tables below shows the coefficient estimates from the Anova models of GRI corporate governance ratings for developed economies. but crossing countries.08% 0.82 Panel B: Industry CGQ.52% 49. These tables are intended to explore whether our previous results that countries explain greater variance than firms in developed economies is actually capturing industry effects.06 .23 13. 2-digit SIC Codes Additional R² Additional Adjusted-R² 0.86% 46.08% 0. the models below include industry as an intermediate level of analysis. industry. Panels A and B focuses on the 2-digit SIC codes for the Index and Industry CGQ's.85% 51.08% 0.64 20.03 46.04% 5.04% 4. However. 2-digit SIC Codes Additional R² Additional Adjusted-R² 0.66 Panel C: Index CGQ. so we proceed with the following hieararchy in our analysis: year. 3-digit SIC Codes Additional R² Additional Adjusted-R² 0.08 14. respectively. What we see in the results below is that industry does capture some of the variation in corporate governance ratings.59% 10. country. again respectively. In contrast to previous emerging GRI economies results using Anova specifications.
359 Country Random Effect 11. Panels C and D present Anova results. The regressions here are intended to test whether including them along with the emerging economies changes our results.GRI Emerging Economies. Correlations are marked with an * for 5% significance. Thus. we have rerun all of our initial models for emerging economies. the regressions below explore the relative importance of countries and firm in explaining corporate governance ratings of firms in emerging economies.044) Company Random Effect 12.055 -0.536 13.032+ (0.022) (0.726 (1.021 -0. We take these results together to confirm our overall finding that.035 0.391 2.236 0. Panels A and B.730 0. the results in the random effects models are statistically not differentiable.235) (4.072) (0.005) (1.809 -27.640) (1.012) (0. ** for 1% significance. even on this restricted sample of emerging economies without tax havens.001 -0.012) (0.006 0.408 0.973 (0.673) Residual 15.732 1.257 0.725 (7.000 -0.223 R² 0. respectively.112 0. firm characteristics range from anywhere to roughly equal to significantly more important than country charcteristics in explain corporate governance variance.223 1.708 Additional Adjusted-R² 0. We analyze additional adjusted R² to determine additional variance explained by each set of variables.352) (0.223 1.251 0.13 0. Panel A: OLS and xtmixed Results for Index CGQ Independent variables *(1)* *(2)* *(3)* *(4)* *(5)* *(6)* *(7)* *(8)* *(9)* *(10)* OLS OLS OLS OLS OLS OLS OLS OLS xtmixed xtmixed Sales Growth 0. More generally.824 Adjusted-R² 0. These small.223 323 1.027) (0.000 -0. again for the Index.611 8. but on a restricted sample that excludes the tax havens.202 0.782) (0. The results below show that the importance of firms effects in emerging economies does not depend on the inclusion of tax havens.725) (7.1% significance.002+ (0. limited set of firm variables and the expanded firm variables.292 -0.003 0.002 (0.299 3.001) (0.528 12.Appendix 6 .321 (0.017) (0.589) Closely Held Shares 0.001) Stock Market Cap/GDP -0.203+ -0.145 -0.001) (0.117 0.433) (3.34 (10.0804 0. The OLS models include different combinations of observable firm and country characterics including both the original.031 0. but exlcuding tax havens. given the large standard errors.240 11.001) (0. and *** for 0.939 (0.331 0.278) .001) (0.110 666 323 1.097) Log (Assets) -0. island countries are present throughout the GRI dataset.199 0.074) (0.564) (7.001 0.745 11.97) Antidirector x Legal 3.184) (0.010 -0.031* 0. Firm variables continue to explain greater governance variance than country variables do. and the Industry-based corporate governance quotient.18) (11.343 0.and Industry-based corporate governance quotient.251 0.547) (2. present OLS and xtmixed results for the Index-based corporate governance quotient.63 (2.024+ -0.76) (22.090 (0.336 0.655 0.454) (6.223 1.843 5.030) Financial Dependence 0.018) Expanded Firm Variables yes Year FE yes yes yes yes yes yes yes yes yes Country FE yes yes yes yes Firm FE yes yes Observations 1.347 0. respectively. Excluding Tax Havens The tables below show the coefficient estimates of various models for the emerging economies in the GRI dataset.110 1. At times.325 0. in emerging economies.008) (0.351 0.886) GDP per capita 0.546) Cash/Assets -2.
437) (2.3 8.391 *(8)* OLS 0.81) 15.224 0.74) 3.376 0.167 0.65) 12.89 (8.032 0.7 33 Additional Adjusted-R ² 16.29) Source of Variation Year Country Company Source of Variation Year Country Company .282 (4.8 Panel D: Anova Results for Industry CGQ Additional R ² 16.1 45.588 (0.25 (25.032 (0.027) -0.001) -0.260 (0.288 0.093 yes yes 1.000 (0.088 (4.196 -0.026* (0.106 yes yes yes 1.001) -0.1 Additional Adjusted-R ² 19.023 (0.35) Panel C: Anova Results for Index CGQ Additional R ² 20.828 0.80% 11.012) yes yes *(3)* OLS 0.814) -0.030) 1.714 0.311 0.018 (0.001 0.018 323 0.40% 10.66) 13.375) -23.8 38.10 (14.014) yes yes yes 1.223 7.385) 0.223 1.02) 13.014 (0.685) 0.277 0.631 (1.933) -0.001) 0.110 0.008) 0.946) 0.249 (10.164 1.110 0.103) -0.016) yes Panel B: OLS and xtmixed Results for Industry CGQ *(4)* *(5)* *(6)* OLS OLS OLS 0.493 (2.Independent variables Sales Growth Financial Dependence Closely Held Shares Log (Assets) Cash/Assets Antidirector x Legal GDP per capita Stock Market Cap/GDP Expanded Firm Variables Year FE Country FE Firm FE Observations R² Adjusted-R² Additional Adjusted-R² Country Random Effect Company Random Effect Residual *(1)* OLS *(2)* OLS 3.001+ (0.001) (0.297 0.082) -0.090) 4.001) -0.022) (0.008 (0.980+ -1.104 (1.27 0.73 0.20% 13 39.022 (0.019) yes yes yes yes 323 0.223 0.728 (7.223 0.46) 7.655 0.160) -0.0490 (0.747) 12.076 (1.386 (0.212 0.218 0.079) 0.097) 6.423 *(9)* xtmixed *(10)* xtmixed yes 1.80% 12.111 *(7)* OLS 1.156 (0.440 (0.001 (0.025 (0.668 (0.148 (2.057 666 0.000 (0.008 (0.547 (6.555) 14.223 0.
587 32.64 34.00 Max Observations 5.FTSE Variables Panel A: Summary Statistics Median Mean St Dev.00 8.85 7.67 0.46 1.720 56.51 -1.333 60.911 100.519.21 6.01 6.56 11.98 2.21 27.32 0.152 259.211.55 7.80 8.52 1.663 0.225 .35 288.780 134.554.10 -1.48 6.00 -26.11 1.57 10.736 8.00 107.78 9.88 75.67 9.127 1.00 0.85 0.25 1.524 6.08 27.80 89.97 0.387 17.00 6.68 15.720 481.86 8.283 22.29 8.00 4.65 5.10 0.14 8.34 1.680 46.000 9.44 22.13 9.00 6.283 169.13 7.938 367.147 155.849 507.00 0.48 1.15 15.00 9.00 0.89 9.12 131.58 10.801.54 9.00 0.00 7.95 17.265.00 -142.526.00 8.000 7.87 9.576 39.476.69 -11.02 -12.918 921.89 121.531 272.72 7.74 1.00 -0.51 7.92 10.342. 3.229 101.556 178.81 6.03 731.08 0.21 0.00 -0.114.268.878 68.719 2.28 0.10 9.42 0.23 23.51 1.00 0 -61.26 15.178 230.304 290.30 1.75 0.26 2.52 183.812.11 53.94 0.873 6.000.00 -100.625 9.82 23.64 15.302.170 ########## 4.00 -100.Variable Corporate Governance Score Antidirector x Legal GDP per capita Stock Market Cap / GDP 2yr Sales Growth Financial Dependence Closely Held Shares Log (Assets) Cash/Total Assets Fixed Assets/Total Assets SEC Compliance CurrentRatio Leverage PE Ratio Price-to-book Ratio Quick Ratio Return on Assets R&D Intensity CapitalExpenditure Cash/Dividends 3yr Dividends Growth 5yr Income Growth 5yr Sales Growth Short-Term Debt 5yr Assets Growth Total Debt Appendix 7 .23 8.99 9.37 9.18 19.59 0.50 9.85 Min 1.35 4.200.98 -400.05 9.05 9.70 1.60 -2.00 -100.02 98.49 13.05 5.727 617.91 1.59 0.16 1.25 0.08 -76.00 0.99 9.19 3.800.729 61.188.84 19.72 6.50 6.771.96 7.
01 0.42*** 0.03*** 0.01 0.03 0.18*** GDP per capita Stock Market Cap / GDP Panel B: Correlations 2yr Sales Financial Growth Dependence Closely Held Shares Log (Assets) Cash/Total Assets Fixed Assets/ Total Assets SEC Compliance Current Ratio Leverage 1.22*** -0.15*** -0.09*** -0.04*** 0.00 -0.18*** -0.07*** 0.00 1.00 -0.00 0.10*** 3yr Dividends Growth 1.00 -0.00 0.21*** 0.02 0.02 0.00 R&D Intensity 1.11*** 0.00 .01 0.20*** -0.00 -0.08*** 0.01 0.00 1.17*** -0.02 0.01 0.00 0.03 0.04*** -0.00 0.07*** 0.04*** -0.02 -0.00 -0.02 0.02 -0.11*** 0.08*** -0.09*** 0.00 0.01 -0.00 0.00 -0.07*** 0.00 0.00 -0.00 -0.00 1.01 0.55*** -0.02 -0.02 Quick Ratio 1.01 -0.00 0.01 0.01 -0.01 0.05*** -0.43** 0.01 -0.00 0.10*** -0.08*** 0.03 0.15*** -0.03*** 0.13*** -0.01 -0.02 -0.01 -0.00 -0.00 0.01 0.13*** 0.01 -0.04*** 0.46*** -0.00 0.01 -0.14*** 0.02 1.01 0.03 0.00 -0.07*** -0.03 0.08*** -0.02 0.24*** 0.04*** 0.05*** 0.10*** -0.01 0.02 -0.03 -0.00 1.00 0.02 -0.00 0.02 -0.02 -0.58*** 0.02 -0.04*** 0.05*** -0.02 -0.07*** -0.00 -0.00 0.00 0.05** 0.01 0.00 0.01 0.08*** 0.01 -0.01 0.05*** -0.01 0.01 0.20*** 0.05*** -0.03*** 0.01 1.02 0.04*** -0.19*** -0.04*** 0.07*** -0.01 0.02 0.01 0.05*** -0.03*** -0.02 0.06*** 0.23*** 0.01 1.01 0.06*** 0.04*** 0.01 0.21*** -0.29*** 0.08*** 0.02 -0.00 0.02 1.03 -0.02 -0.03*** 0.04*** 0.00 -0.00 0.01 0.01 -0.01 -0.01 0.22*** -0.01 0.03 -0.01 0.00 0.01 0.00 0.11*** 1.10*** -0.07*** -0.03*** 0.07*** 0.00 Total Debt 1.00 0.01 0.06*** 0.09*** 0.00 0.06*** -0.03 -0.15*** -0.00 0.02 -0.24*** 0.23*** 0.05*** 0.00 0.53*** -0.02 -0.11*** -0.01 0.83*** 0.05*** 0.57*** 1.06*** -0.00 -0.08*** 0.00 0.01 -0.02 -0.01 0.05*** -0.01 -0.10*** 0.06*** -0.02 -0.06*** 0.00 5yr Income Growth 1.08*** 0.01 0.08*** 0.00 -0.03*** 0.00 -0.01 0.02 -0.54*** 0.01 0.01 0.09*** -0.00 -0.05*** 0.18*** 0.02 5yr Sales Growth 1.00 -0.05*** -0.03 0.08*** 0.10*** -0.01 Return on Assets 1.07*** 0.10*** 0.19*** -0.04*** 0.10*** 0.53*** -0.02 0.00 0.00 0.00 0.01 0.02 1.00 0.00 0.01 0.00 0.01 Short-Term Debt 1.02 -0.27*** -0.15*** -0.00 0.01 -0.00 0.02 -0.03 -0.01 0.01 0.01 -0.05*** -0.01 -0.00 -0.00 0.04*** 0.00 -0.01 0.03*** -0.01 0.00 0.35*** 0.40*** 0.08*** -0.05*** -0.00 0.02 -0.07*** Capital Expenditure 1.09*** -0.02 5yr Assets Growth 1.07*** -0.00 Cash/ Dividends 1.96*** 0.03 0.00 -0.03*** Price-to-book PE Ratio Ratio 1.08*** 0.03 0.01 -0.01 -0.04*** -0.03 0.00 0.01 0.01 0.02 0.14*** 0.18*** 0.07*** -0.00 0.01 0.00 0.00 0.06*** 0.07*** -0.07*** -0.02 0.00 0.11*** 0.01 -0.00 0.01 0.00 1.04 0.17*** 0.02 -0.03*** -0.04*** 0.01 -0.05*** 0.00 0.00 -0.04*** -0.00 0.04*** 0.00 0.03 0.03 0.02 -0.00 0.03*** 0.08*** 0.00 0.13*** -0.01 0.03*** -0.17*** -0.02 0.00 0.Corporate Governance Score Antidirector x Legal GDP per capita Stock Market Cap / GDP 2yr Sales Growth Financial Dependence Closely Held Shares Log (Assets) Cash/Total Assets Fixed Assets/Total Assets SEC Compliance CurrentRatio Leverage PE Ratio Price-to-book Ratio Quick Ratio Return on Assets R&D Intensity CapitalExpenditure Cash/Dividends 3yr Dividends Growth 5yr Income Growth 5yr Sales Growth Short-Term Debt 5yr Assets Growth Total Debt PE Ratio Price-to-book Ratio Quick Ratio Return on Assets R&D Intensity CapitalExpenditure Cash/Dividends 3yr Dividends Growth 5yr Income Growth 5yr Sales Growth Short-Term Debt 5yr Assets Growth Total Debt Corporate Governance Antidirector x Score Legal 1.02 -0.00 0.00 0.00 0.04*** 0.06*** 0.02 0.03*** 0.02 0.
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