Reviewing and revisiting the use of corporate governance indices

Abstract

The recent developments in the regulatory framework on corporate governance worldwide have drawn the attention of the academic world on corporate governance issues, and especially on the measurement of the quality of corporate governance. Corporate governance is a complex mechanism with multiple attributes. A comprehensive corporate governance index is thus needed to concentrate all of the governance mechanisms into a single integrated, yet informative score which can reflect upon the overall quality of a firms' corporate governance. Several methods of measurement of quality of corporate governance have been employed by the academic researchers and the commercial service-providers to measure the same underlying phenomenon, i.e., the quality of corporate governance. This paper examines, through extensive review of the extant literature, the use, problems and prospects of CG indices as a correct and dependable measure of quality of corporate governance and analyses the challenges in the construction and interpretation of corporate governance indices.