Evaluating corporate governance and identifying its formulating factors: the case of Greece

This paper seeks to establish a benchmark for the evaluation of the quality of corporate governance (CG) and to detect the factors that affect it in Greece.

An index of corporate governance quality is constructed using binary variables. Data from annual reports are used to identify the mechanisms and practices of corporate governance. An ordinal probit model is used to identify the drivers of corporate governance.

CG quality in Greece is quite low, in terms of international best practices. The main drivers of CG quality are firm size, leadership or power concentration and board characteristics. Greek firms' CG quality depends mainly on the balance of power within the firm, rather than performance or market for corporate control.

Data for the constructed index have been collected from the annual reports, and not from questionnaires.

The study provides evidence that there is a different set of factors that affect CG quality from those in Anglo‐Saxon countries. The paper addresses the issue of the relevance of proposed CG mechanisms to real CG problems. By identifying the factors that have an impact on CG quality, policy makers can focus on them to create a legal‐regulatory framework that can improve the level of CG.

The paper not only measures CG, but pinpoints its formulating factors as well. Furthermore, the need for new benchmarking tools to address the fundamental elements of the corporate environment (i.e. ownership concentration, the lack of a market for corporate control, etc.) in continental Europe is highlighted.