Finally, in order to quantify the corporate governance provisions we rely on
Bebchuk et al. (2004) and Toudas and Karathanassis (2007) who used a six factor
model. These six factors include the most important provisions that measure the level
of qualitative application of corporate governance: staggered boards, limits to
shareholder amendments of the bylaws, supermajority requirements for charter
amendments, Poisson pills and golden parachute arrangements. Accordingly, we
construct a Corporate Governance Provisions Index (CGPI) which measures the
degrees of freedom of the management board of firms examined in our analysis.
As a result the inclusion of capitalization, trading volume and volatility would stand
for the short run objective of the exchange, while inclusion of a corporate governance
component score and default probability of firms would represent the long run
objective of the exchange.
In order to overcome the inherent difficulty of logit regression to deal with time
varying data we apply the time varying logit regression through the rolling window
technique. This application would enhance the explanatory power of the derivatives
listing determinants, since the financial system is always under structural changes and
regime shifts. Hence, use of aggregate data, as extant literature has suggested, instead
of time varying methodologies would lead to misspecification problems in the
investigations of the derivatives listing process.