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An interval variables approach to address measurement uncertainty in governance indicators

Author

Listed:
  • Carlo Drago

    () (University of Rome "Niccolò Cusano" and NCI University in London)

  • Roberto Ricciuti

    () (University of Verona and CESifo)

Abstract

Many variables in governance are measured with uncertainty. This paper addresses this problem, showing that interval variables are a suitable way to handle it, providing an application in corporate governance. We build two constructs, one for Investor protection and the other for Constraints on shareholders based on the original dataset by La Porta et al. (1998) and we find that for very low levels of investor protection, constraints are a suitable way to provide some form of safeguard. We also provide evidence for the theoretical claim that investor protection and constraints on shareholders work as substitutes under specific circumstances.

Suggested Citation

  • Carlo Drago & Roberto Ricciuti, 2019. "An interval variables approach to address measurement uncertainty in governance indicators," Economics Bulletin, AccessEcon, vol. 39(1), pages 626-635.
  • Handle: RePEc:ebl:ecbull:eb-18-00716
    as

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    References listed on IDEAS

    as
    1. Kersting, Erasmus & Kilby, Christopher, 2014. "Aid and democracy redux," European Economic Review, Elsevier, vol. 67(C), pages 125-143.
    2. Carlo Drago, 2017. "Interval Based Composite Indicators," Working Papers 2017.42, Fondazione Eni Enrico Mattei.
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    4. Michela Nardo & Michaela Saisana & Andrea Saltelli & Stefano Tarantola & Anders Hoffman & Enrico Giovannini, 2005. "Handbook on Constructing Composite Indicators: Methodology and User Guide," OECD Statistics Working Papers 2005/3, OECD Publishing.
    5. Voigt, Stefan, 2013. "How (not) to measure institutions: a reply to Robinson and Shirley," Journal of Institutional Economics, Cambridge University Press, vol. 9(1), pages 35-37, March.
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    7. Lee Cronbach, 1951. "Coefficient alpha and the internal structure of tests," Psychometrika, Springer;The Psychometric Society, vol. 16(3), pages 297-334, September.
    8. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
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    11. Daniel Kaufmann & Aart Kraay & Massimo Mastruzzi, 2010. "Response to ‘What do the Worldwide Governance Indicators Measure?’," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 22(1), pages 55-58, February.
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    15. Selly Amal-Kerim & Hélène Rey-Valette & Francoise Seyte & Dorothé Boccanfuso, 2015. "A subjective view of governance indicators," Working Papers 15-10, LAMETA, Universtiy of Montpellier, revised Oct 2015.
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    More about this item

    Keywords

    Governance; Measurement; Interval Data; Latent Variables.;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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