Assessment of validity

Validity is defined as “the extent to which any measuring instrument measures what it is intended to measure” (Carmines and Zeller, 1991: 17). There are usually three common types of validity: content validity, criterion-related validity, and construct validity (Sekaran, 2003; Lee and Lings, 2008). First, content validity refers to assuring that the measurement tool has all items that well represent the construct (Sekaran, 2003; Saunders et al., 2007). According to Hassan and Marston (2010: 29)

“content validity is assessed through seeking subjective judgment from non-

experts and/ or professionals, hence some refer to it as face validity, on how well

the instrument measures what it is intended to measure.”

Accordingly, content validity was attested since the researcher conducted an extensive literature review for the construct, corporate governance disclosure, as in

disclosure studies (e.g., Cheng and Courteny, 2006; Abdel-Fattah, 2008; Aly, 2008). Also, two corporate governance specialists reviewed and checked the disclosure index that was used, assuring that it includes all corporate governance disclosure items (e.g., Cheng and Courteny, 2006; Abdel-Fattah, 2008; Aly, 2008).

Second, criterion-related validity considers whether the measurement instrument uses some standards and criterion to measure and predict the construct accurately (Sekaran, 2003). Thus, criterion validity is divided into concurrent and predictive validity.

• Concurrent validity refers to whether the current measurement instrument

correlates with others measuring the same construct, in other words, whether the disclosure index is in agreement with previous indices (Aly, 2008). Chapter 5 explained the development of the corporate governance disclosure index used in the current research; it showed how previous indices (e.g., S&P, UNCTAD) were used with the exclusion of items assessed as not an appropriate fit to the environment in the GCC countries. It also noted that there is no general or commonly used theory that addresses selection of items to be used while assessing disclosure (Wallace, 1988), in other words, developing a disclosure index (Hooks et al., 2000). However, the research focus determines the appropriate items to be selected while constructing a disclosure index (Wallace and Naser, 1995). Correlations between the examined independent variables (ownership structure, board characteristics, and firm characteristics) and corporate governance disclosure or voluntary disclosure was also examined in previous studies, in an attempt to confirm concurrent validity in several disclosure studies (e.g., Cheng and Courteny, 2006; Aly, 2008).

• Predictive validity refers to whether the measurement instrument can produce accurate predictions about the construct, in other words, whether the current corporate governance disclosure index can be used in future studies assessing corporate governance disclosure in GCC countries’ publicly listed companies (Aly, 2008). Since the current corporate governance disclosure index is suggested to capture all corporate governance items relevant to the environment in the GCC countries, it can be used to assess corporate governance disclosure in the GCC countries’ publicly listed companies in the future.

Accordingly, the researcher followed the previous steps in an attempt to confirm criterion-related validity (Aly, 2008). However, criterion-related validity cannot be totally confirmed in disclosure studies as is the case with social science measures (Hassan, 2006). This is because “there is no criterion with which to assess validity” in social science (Lee and Lings, 2008: 170; Carmines and Zeller, 1991). However, measures in social sciences represent theoretical concepts where no known criterion variables could be compared with (Carmines and Zeller, 1991). Therefore, “criterion validity is less likely to be used in assessing the validity of social science measures” (Hassan and Marston, 2010: 29).

Finally, construct validity refers to whether the measurement instrument measures what it intends to measure (Sekaran, 2003), thus whether corporate governance disclosure index measures accurately what it intends to measure. Correlation analysis can be used to test construct validity (Sekaran, 2003). Moreover, validity of the disclosure scores has been assessed using correlation analysis in previous disclosure studies (e.g., Cheng and Courtenay, 2006; Abdel-Fattah, 2008). Accordingly,

construct validity, in this study, was examined by conducting correlation analysis of total corporate governance disclosure scores (TCGD) and individual category scores using both Pearson and Spearman’s rho correlation coefficients (Cheng and Courtenay, 2006; Abdel-Fattah, 2008). Table 6.1 presents Pearson’s correlation coefficients while Table 6.2 presents Spearman’s correlation coefficients between TCGD score and its categories’ scores.

Table 6.1: Pearson’s correlation between TCGD and its categories

TCGD 1. OWN 2. FTID 3. AUD 4. BSM 5. BCOM 6. CBR

TCGD Pearson Correlation 1

Sig. (2-tailed)

1. OWN Pearson Correlation .543

**

1

Sig. (2-tailed) .000

2. FTID Pearson Correlation .562

**

.379** 1

Sig. (2-tailed) .000 .000

3. AUD Pearson Correlation .878

** .503** .440** 1 Sig. (2-tailed) .000 .000 .000 4. BSM Pearson Correlation .872 ** .276** .269** .734** 1 Sig. (2-tailed) .000 .000 .000 .000

5. BCOM Pearson Correlation .817

** .233** .237** .674** .871** 1 Sig. (2-tailed) .000 .000 .000 .000 .000 6. CBR Pearson Correlation .797 ** .431** .344** .681** .579** .546** 1 Sig. (2-tailed) .000 .000 .000 .000 .000 .000

**. Correlation is significant at the 0.01 level (2-tailed).

TCGD = Total Corporate Governance Disclosure, OWN = Ownership Structure and Investor Rights, FTID = Financial Transparency and Information Disclosure, BSM = Board of Directors and Senior Management Structure and Process, AUD = Information on Auditors, BCOM = Board Committees,

Table 6.2: Spearman’s rho correlation between TCGD and its categories

TCGD 1. OWN 2. FTID 3. AUD 4. BSM 5. BCOM 6. CBR

TCGD Correlation Coefficient 1.000

Sig. (2-tailed) .

1. OWN Correlation Coefficient .548

**

1.000

Sig. (2-tailed) .000 .

2. FTID Correlation Coefficient .521

**

.277** 1.000

Sig. (2-tailed) .000 .000 .

3. AUD Correlation Coefficient .882

** .524** .380** 1.000 Sig. (2-tailed) .000 .000 .000 . 4. BSM Correlation Coefficient .837 ** .268** .239** .709** 1.000 Sig. (2-tailed) .000 .000 .000 .000 .

5. BCOM Correlation Coefficient .767

** .231** .206** .620** .770** 1.000 Sig. (2-tailed) .000 .000 .001 .000 .000 . .000 6. CBR Correlation Coefficient .812 ** .434** .372** .705** .566** .529** 1.000 Sig. (2-tailed) .000 .000 .000 .000 .000 .000 .

**. Correlation is significant at the 0.01 level (2-tailed).

TCGD = Total Corporate Governance Disclosure, OWN = Ownership Structure and Investor Rights, FTID = Financial Transparency and Information Disclosure, BSM = Board of Directors and Senior Management Structure and Process, AUD = Information on Auditors, BCOM = Board Committees,

CBR = Corporate Behaviour and Responsibility

The results in Tables 6.1 and 6.2 indicate that all the six categories’ scores are highly correlated with TCGD. Thus, construct validity of the current corporate governance disclosure index has been confirmed; in other words, the corporate governance disclosure index measures and captures corporate governance practices in the annual reports.