An interval variables approach to address measurement uncertainty in governance indicators

Many variables in governance are measured with uncertainty. This paper addresses this problem, showing that interval variables are a suitable way to handle it, providing an application in corporate governance. We build two constructs, one for Investor protection and the other for Constraints on shareholders based on the original dataset by La Porta et al. (1998) and we find that for very low levels of investor protection, constraints are a suitable way to provide some form of safeguard. We also provide evidence for the theoretical claim that investor protection and constraints on shareholders work as substitutes under specific circumstances.