Most existing studies use binary variables to
construct a CG index. Gompers et al. (2003) sum 24
binary variables to form an index with a range of 0 to
24. CLSA (2001) uses a questionnaire that consists of
57 binary questions using seven criteria. 16 of their 57
questions are subjective, because the researchers
judge the responses to these questions independently.
All but two of the 57 questions are equally weighted.8
Standards & Poor’s research by Patel et al. (2002)
uses 98 questions to develop a transparency and
disclosure score. Haque et al. (2011) use a questionnaire-
based Corporate Governance Index (CGI),
which consists of five subindices to investigate the
effect of CG on capital in Bangladesh. We generate
our indices for CG mechanisms using PCA and
normalize them to 0–100, so that we can make
ordinal comparisons among companies. We also
generate alternative simple indices from binary variables,
9 and normalize them to 0–100 to compare with
the PCA indices. For details, please refer to Table 2,
Panel B.