Title: On the incremental information content of the components of the Globe and Mail Corporate Governance Index

Authors: F.J. Arcelus, Navid Kheradmand, D. Mitra, G. Srinivasan

Addresses: Departamento de Gestion de Empresas, Universidad Publica de Navarra, Campus de Arrosadia, 31006 Pamplona, Navarra, Spain. ' Enterprise Architecture, Corporate Information Management Services, Department of Supply and Services, Government of New Brunswick, Fredericton, New Brunswick, Canada. ' Faculty of Business Administration, University of New Brunswick, P.O. Box 4400, Fredericton, New Brunswick E3B 5A3, Canada. ' Faculty of Business Administration, University of New Brunswick, P.O. Box 4400, Fredericton, New Brunswick E3B 5A3, Canada

Abstract: This study seeks to assess the construct validity of the Globe and Mail Corporate Governance Index. A number of recent studies that have examined corporate governance practices in Canada have relied on annual data from this index. We find an important degree of redundancy on the construction of the index. Our results indicate that fewer index components and even fewer questions to compose each component produces similar results, even for firms that are large and cross-listed. The study suggests that a further review of the theoretical justification of the properties of the Globe and Mail Corporate Governance Index is in order to streamline the selection of its components, thereby improving its quality. From the perspective of practitioners and policy makers, an implication of the study is that if a particular application requires the use of governance indexes for firms not on the list, our results justify relying on the use of a smaller set of components, with even fewer questions, to compose an index of comparable quality.

Keywords: construct validity; Globe and Mail; corporate governance indices; Canada; newspapers; incremental information; information content; incremental content; annual data; redundant information; index construction; index components; component composition; large firms; cross-listed companies; component selection; selection streamlining; quality improvement; practitioners; policy makers; component sets.

DOI: 10.1504/IJCG.2011.041153

International Journal of Corporate Governance, 2011 Vol.2 No.2, pp.156 - 172

Published online: 11 Jul 2011 *

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