Consequences of Data Errors for the Validity of the E-index as a Proxy for Corporate Governance
Type
working paper
Date Issued
2021-07
Author(s)
Abstract
The E-index is one of the most widely used proxy variables for corporate governance in empirical research. We show that ISS data contain a significant number of measurement errors and misreported values. We use alternative databases to manually check deviations across databases and to construct a corrected E-index. We then revisit analyses conducted in three well-known and widely-cited studies using the E-index and compare results from using either ISS or corrected data to construct the E-Index. The results show that data errors in ISS result in a substantially overestimated negative association between the E-index and firm value. Moreover, data errors in ISS lead to incorrect conclusions regarding the relationship between the E-index and different measures of operating performance and analysts’ earnings forecasts. In summary, our results show that data quality is an important issue when measuring corporate governance.
Language
English
Keywords
Corporate governance
Entrenchment index
Data quality
Measurement
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Subject(s)
Division(s)
Contact Email Address
larissa.karthaus@unisg.ch
Eprints ID
264665
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Name
KarthausvonMeyerinckSchmid_EIndex.pdf
Size
975.75 KB
Format
Adobe PDF
Checksum (MD5)
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