Towards better governance: creating a corporate governance index for South African firms

Purpose The purpose of this study is to construct a robust index and subindices to measure the quality of corporate governance for 266 firms listed in South Africa from 2004 to 2021. Design/methodology/approach Public information on the compliance of King Code of Good Corporate Governance is used to...

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Bibliographic Details
Published in:Corporate governance (Bradford) 2024-12, Vol.24 (8), p.133-146
Main Authors: Naidu, Delane Deborah, McCullough, Kerry, Peerbhai, Faeezah
Format: Article
Language:English
Subjects:
Accounting
Audit committees
Auditing
Boards of directors
Codes
Compliance
Corporate governance
Emerging markets
International finance
Shareholders rights
Stockholders
Validity
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Summary:Purpose The purpose of this study is to construct a robust index and subindices to measure the quality of corporate governance for 266 firms listed in South Africa from 2004 to 2021. Design/methodology/approach Public information on the compliance of King Code of Good Corporate Governance is used to construct a main index predicated on provisions relating to board characteristics, accounting and auditing and risk management. These categories are transformed into three subindices. All constructs are scored with binary coding and equally weighted. Findings Cronbach’s alpha test reveals that the index and subindices are highly reliable measures of corporate governance. The principal component analysis supports the construct validity of all measures. Research limitations/implications The index is limited to only three corporate governance subcategories and only focuses on South Africa. Practical implications These corporate governance indices provide governing authorities, policymakers, investors and other market participants direct information on the quality of corporate governance in South African firms. Originality/value As South Africa lacks a formal corporate governance indicator, the development of an appropriate corporate governance index and subindices contributes towards understanding the quality of corporate governance in South African firms. To the best of the authors’ knowledge, this is the first paper to conduct robustness tests on corporate governance indices designed for South African companies.
ISSN:1472-0701
1472-0701
1758-6054
DOI:10.1108/CG-04-2024-0228