Note that the simple index often involves somewhat
arbitrary cut-off points. In the executive compensation,
for example, we set the criteria of highincentive
alignment with firm’s interest to directors
with over 50% of outstanding shares. The same
threshold also applies to the ownership-structure and
board-structure attributes. These arbitrary cut-off
points would have to be modified if applied to other
markets, according to different market and
institutional settings. For PCA, they would seem to
be more objective, as the largest eigenvalue principal
component is selected for index construction.