Corporate Governance Practices In Emerging Markets: The Case Of GCC Countries
Different CG indices have been established in the literature, mostly depended on developed countries. But, very small work has been carried out on the developing and emerging markets. An attempts is carried out to establish know how of the emerging markets of Asia Especially established in oil based GCC countries. A little Interesting work has been carried out by two professional bodies; Institutional Shareholder Service (ISS) and Investors Responsibility Research Center (IRRC).
Both, ISS and IRRC provide a large CG database which offers a composite measure to analyse the overall Quality of a firm's CG. Important research in this area has been Done by La Porta et al. (1998), Klapper and Love (2002), Gompers Et al. (2003), De Toledo and Pillicer (2006), Brown and Caylor (2006), Leal and Carvalhal-da-Silva (2005), Ananchotikul (2007), Garay and Gonzalez (2008), Daines et al. , 2010; Ibrahimpasic (2012) and Hassan (2012), are among others. A preliminary work CG was conducted By La Porta et al. (1998) to measure the limits of that develops an “anti-director rights” Index to measure the degree of shareholder safety a major Factor in CG in 49 countries around the world. The index is calculated to know the sum of six dummies that assume the value Of 1 if a given form of shareholder protection is present and 0 Otherwise. It is concluded that common law countries have powerful investor safety than civil law countries and that stronger investor protection is related to greater ownership Dispersion.
Following the same lines, Klapper and Love (2002) constructed a weighted average CGI for 374 firms in 14 emerging countries on a scale of 0–100. They conducted a firm level survey completed by Credit Lyonnais Securities Asia (CLSA) but with only six governance Components out of the seven studied by CLSA to build the index. The factors studied are management discipline, transparency, Independence, accountability, responsibility and fairness. The study pointed out that countries having poor legal systems, scored higher index in terms of CG and companies intending to expand In the market with the help of external credit have more chances of establishment To adhere to better governance. Moreover, Klapper and Love that the countries listed in US stock markets shows good Governance. One more renowned and mostly used CG index; the ‘G-Index’ was established by Gompers et al. (2003) for 1500 large firms between 1990 and 1998. They used un-weighted index to compute CGI retrieving IRRC data as an equally weighted sum of 24 Shareholders rights practices across five characteristics; delay, safety, voting, state and others. The index assigns a value of 1 for every attribute that refuse shareholder rights and 0 Otherwise. Results shows that good governance has a positive Relationship with stock returns.
In the same scenario, De Toledo And Pillicer (2006) established a governance chart for 97 nonfinancial Public companies in Spain by maintaining a binary Scale. Based on 25 questions and the questionnaire prepared By Brown and Caylor (2006); Gompers et al. (2003) and Klapper and Love (2004) are considered to arrive at the CGI and Companies scoring 25 are persume to portray high governance Standards. A study by Leal and Carvalhal-da-Silva (2005) on Brazil established another milestone in index preparation relevant to emerging Countries. They prepared an un-weighted CGI for 131 firms listed in The Sao Paulo stock exchange from 1998 to 2002.
