Spanos, Loukas and Tsipouri, Lena and Xanthakis, Manolis (2006): Corporate governance rating in a small open capital market: Methodology and applications in the Greek market. Published in: Τhe IUP Journal of Corporate Governance (July 2006)
Download (604kB) | Preview
The need of institutional investors to evaluate the Corporate Governance (CG) practices of listed companies resulted in many attempts to construct the CG rating methodologies. This paper, in response to this situation, attempts to quantify the compliance of large capitalization Greek companies with international best practices. The methodology consists of a questionnaire reflecting the Greek CG code, which basically replicates the OECD principles. Other wellregarded CG codes are also taken into account. Then, a rating system based on CG indicators is constructed and applied for the years 2001 and 2003. The total rating results for the years 2001 and 2003 demonstrate a relatively satisfactory improvement. The highest compliance is in the category of shareholder rights, while weak compliance appears in the last category, which incorporates commitment to CG, CSR and the relations with shareholders. The exercise, using practically all agreed principles of the OECD, could demonstrate a reasonable degree of compliance of the average company rated. Its limitation in that respect is that it could not satisfy investigations on convergence. The indicators used are highly pertinent to measure compliance but not convergence, which is not within the initial targets and needs a longer time series analysis. The methodology is applied in a small open economy and may have significant implications in other similar capital markets. Methodologically, the merit of the exercise lies in its approach toward the creation of "collectively subjective" weightings, and is valuable to institutional investors, policymakers, regulators and academics.
The upgrading of the Greeek capital market to a mature market status and the global competition for capital has boosted the CG debate in Greece. In addition, the recent corporate failures and financial scams around the world have increased awareness that proper CG is fundamental to the efficient operation of capital markets. The need of institutional investors to evaluate the CG practices of the listed companies resulted in many attempts to construct CG rating methodologies. This paper presents an attempt to quantify the compliance of large capitalization Greek companies with international best practices. Firstly, the literature on CG ratings is reviewed. Secondly, a brief history of the CG in Greece is presented. Then, the structure of our CG rating methodology and the results are described. Finally, the findings and proceedings with some critical points are summarized.
|Item Type:||MPRA Paper|
|Original Title:||Corporate governance rating in a small open capital market: Methodology and applications in the Greek market|
|Keywords:||corporate governance; rating; Greece|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill
G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
|Depositing User:||Loukas Spanos|
|Date Deposited:||28. Nov 2012 15:53|
|Last Modified:||03. Jan 2016 15:21|
Becht, M. (1997), Strong blockholders, weak owners and the need for European mandatory disclosure, European Corporate Governance Network, Executive Report, October.
Berle, A. and Means, G. (1932), The Modern Corporation and Private Property, The Macmillan Company, New York.
Black, B. (2001) "The Corporate Governance Behavior and Market Value of Russian Firms", Stanford Law School, Working Paper No. 212.
Black, B., Jang, H. and Kim, W. (2003) "Does Corporate Governance Affect Firms' Market Values? Evidence from Korea", Working Paper 237, Stanford Law School, John M. Olin Program in Law and Economics.
Bradley, N. (2004) "Corporate Governance Scoring and the Link Between Corporate Governance and Performance Indicators: in search of the Holy Grail", Corporate Governance: An International Review, vol. 12, pp. 8-10.
Committee on Corporate Governance in Greece (1999), Principles on Corporate Governance in Greece: Recommendations for its Competitive Transformation, October, Athens.
Corporate Governance Authority (2002), The Corporate Governance Questionnaire (www.cgratings.com).
Deminor (2001), Corporate Governance Rating Service, Brussels (www.deminor.com).
Durnev, A. and Kim, H. (2003) "To Steal or Not to Steal: Firm Attributes. Legal Environment, and Valuation", Working Paper, available at www.ssrn.com.
DVFA (2000), Scorecard for German Corporate Governance: Standard DVFA Evaluation Method for Corporate Governance, Germany (www.dvfa.de).
Fama, E. and Jensen, M. (1983) "Separation of Ownership and Control", Journal of Law and Economics, vol. 26, pp. 301-325.
Gompers, P. A., Ishii, J. L., and Metrick, A. (2003) "Corporate governance and equity Prices", The Quarterly Journal of Economics, vol. 20, pp. 118-107.
Grossman, S. and Hart, O. (1986) "The costs and benefits of ownership: A theory of vertical and lateral integration", Journal of Political Economy, Vol. 94, pp. 691-719.
Hirschman, A. (1970), Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States, Harvard University Press, Cambridge, Mass. 15
Klapper, L. and Love, I. (2002) "Corporate Governance, Investor Protection, and Performance in Emerging Markets", Working Paper 2818, World Bank Policy Research.
Mertzanis, H. V. (2001) "Principles of Corporate Governance in Greece", Corporate Governance: An International Review, vol. 9, pp. 89–100.
OECD (1999), OECD Principles of Corporate Governance, May.
Sherman, H. (2004) "Corporate Governance Ratings", Corporate Governance: An International Review, vol. 12, pp. 5-7.
Shleifer, A., and Vishny, R. (1997), "A Survey of Corporate Governance", Journal of Finance, no. 52, pp. 737-784.
Spanos, L., Xanthakis, M. and Tsipouri, L. (2004), "Corporate governance rating and family firms: the Greek case", paper presented at the Family Firms and Corporate Governance Conference, organized by the Corporate Governance Forum of Turkey and the Global Corporate Governance Forum in collaboration with the European Corporate Governance Institute, Istanbul, Turkey, May 21-22, forthcoming, Managerial Finance (http://ssrn.com/abstract=655021).
Spanos, L. (2005) "Corporate Governance in Greece: Developments and Policy Implications", Corporate Governance: The International Journal of Business in Society, vol. 5.
Standard & Poor's (2001), Corporate Governance Services: Criteria, Methodology and Definitions, McGraw Hill Companies Inc.(www.governance.standardandpoors.com)
Strenger, C. (2004) "The Corporate Governance Scorecard: a tool for the implementation of corporate governance", Corporate Governance: An International Review, vol. 12, pp. 11-15.
Tsipouri, L., and Xanthakis, M. (2004) "Can Corporate Governance be Rated? Ideas based on the Greek experience", Corporate Governance: An International Review, vol. 12, pp. 16-28.
Williamson, O. E. (1985). The Economic Institutions of Capitalism, New York: The Free Press.
Xanthakis, M., Tsipouri, L. and Spanos, L. (2003), Corporate Governance: Concepts and Ratings, Papazisis Publishing House, Athens (in Greek).