On page 14 of the attached FIRST article, there are details on how the C-score is calculated. The second article by WU outlineS how the C score is calculated on page 12.

Three factors are used: SIZE, MTB or (market to book value and leverage) and LEV. It is a multiple regression modeling. See also the third article by Khalifa on page 18 for details on how to construct and run the regression. In the literature, C score and G score are analyze together. The modeling of C score is:

Y = b0 + b1Xsize + b2XMTB + b3Xlev

Hope this has been helpful. Cheers.

I'm also looking for answer, if you find any helpful answers plz inform me.

Dear Mahmoud here is the answer from (wu et al.,2007)

Following Khan and Watts (2007), we use two steps to analyze the relation between a firm’s C-Score and corporate governance. In the first step, we estimate C-Score for each firm-year. Then, we regress C-Score on the variables of interest in this study. Step 1. C-Score is calculated as follows. First, we estimate equation (1) with annual cross-sectional regressions (from 1996 to 2004):

EARNi,t = β1,t + β2,t NEGi,t + RETi,t (μ1,t + μ2,t SIZEi,t + μ3,t M/Bi,t + μ4,t LEVi,t) + NEGi,t × RETi,t (λ1,t + λ2,t Sizei,t + λ3,t M/Bi,t + λ4,t LEVi,t) + εi,t(1)

where i indexes firm; t indexes year:

EARN = net income before extraordinary items, scaled by beginning-of-year market value of equity;

RET = annual returns compounded from monthly returns beginning from 10 the fifth month after fiscal year end;

NEG = one if RET ≤ 0, and zero otherwise;

SIZE = natural log of the market value of equity;

M/B = market-to-book ratio;

LEV = long-term and short-term debt, scaled by beginning-of-year market value of equity;

ε = error term.

Then, we collect the yearly λ-coefficients (i.e., λ1 ~ λ4) and calculate the firm-year C-Score by the following equation (2):

C-Scorei,t = λ1,t + λ2,t Sizei,t + λ3,t M/Bi,t + λ4,t Levi,t. (2)

The higher the C-Score, the more conservative the firm is in its financial reporting.

Do you know the relationship between G-Score and the C-Score?

Dear Alaa,

can you tell how to estimate equation (1) in Stata?@ Alaa Brick Hnaide