Corporate governance indices and firms' market values: Time series evidence from Russia

There is increasing evidence that broad measures of firm-level corporate governance predict higher share prices. However, almost all prior work relies on cross-sectional data. This work leaves open the possibility that endogeneity or omitted firm-level variables explain the observed correlations. We address the second possibility by offering time-series evidence from Russia for 1999-present, exploiting a number of available governance indices. We find an economically important and statistically strong correlation between governance and market value both in OLS and in fixed effects regressions with firm-index fixed effects. We also find large differences in coefficients and significance levels, including some sign reversals, between OLS and fixed effects specifications. This suggests that cross-sectional results may be unreliable. We also find significant differences in the predictive power of different indices. How one measures governance matters.