Methods for Multicountry Studies of Corporate Governance (and Evidence from the BRIKT Countries)

Country level governance variables and ownership concentration as determinants of firm value in Latin America

“…The endogeneity problem takes place when improved valuation might drive an impact on governance measures (Durnev and Kim, 2005;Love, 2011). We follow Black et al (2014) and proceed, on the one hand, by applying panel data with fixed effect (FE) specifications to tackle the unobservable heterogeneity problem, and, on the other, by computing the governance measures at the beginning of the year and firm value at year-end in order to address the endogeneity problem. 1 Although prior research has focused on cross-sectional data, we seek to improve on these findings following Black et al (2014) and using FE as time-demeaned specification as x dm it = (x it −x i ) where x it corresponds to the vector of independent variables.…”

“…We follow Black et al (2014) and proceed, on the one hand, by applying panel data with fixed effect (FE) specifications to tackle the unobservable heterogeneity problem, and, on the other, by computing the governance measures at the beginning of the year and firm value at year-end in order to address the endogeneity problem. 1 Although prior research has focused on cross-sectional data, we seek to improve on these findings following Black et al (2014) and using FE as time-demeaned specification as x dm it = (x it −x i ) where x it corresponds to the vector of independent variables. With this transformation, the FE estimator is consistent even if the firm effects are correlated with country-level variables and other firmlevel variables.…”

Empirical Comparative Law

“…The point of Bubb (2013) was to show that there was no discontinuous change in outcomes at the border, providing evidence against any effect of law (although in theory his results are also consistent with multiple offsetting changes). 22 Consistent with this skepticism, Albouy (2012) argues that the most famous comparative result using an instrumental variable (settler mortality; Acemoglu et al 2001) was an artifact of measurement and specification error. 23 For an example using comparative data in this conservative way, see., e.g., Givati (2014).…”

“…21 There are three mutually reinforcing reasons, however, to be very skeptical about IV estimates in ECL. 22 First, the IV estimator is notoriously unreliable------in particular, biased away from zero------in small samples (Bound et al 1995), and the samples of ECL are extremely small. Second, the exclusion restriction will rarely, if ever, hold in comparative applications.…”

“…For example, some statutory provision may be very important for shareholder protection in one country but irrelevant in another because of the absence or presence of certain other rules or institutions (Black et al 2014). Similarly, some institution may be important in one country but redundant in another because of the presence of a functional equivalent (on functional equivalence, see Michaels 2006).…”