(WP 2011-02) Predicting Changes in Corporate Governance in Emerging Markets

This paper investigates what predicts changes in corporate governance in emerging markets. To conduct this study we utilize a unique data set from AllianceBernstein that consists of monthly firm-level corporate governance ratings for 24 emerging market countries for almost seven years. Since the AllianceBernstein ratings are time-series data, they allow us to determine the direction of changes in a firm?s corporate governance, and when these changes take place. Using these data we find that in some cases, increases in firm size are significantly related to improvements in governance. However, we also find that changes in country conditions or firm characteristics, other than size, are generally not related to changes in firm level governance. Indeed, we find that even changes in firm valuation do not generally predict future changes in firm governance. Our results suggest that changes in firm governance are difficult to predict.