Endogeneity and the corporate governance - performance relation

Emma L. Schultz, David T. Tan and Kathleen Walsh ()
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Emma L. Schultz: Australian National University
David T. Tan: Australian National University

Australian Journal of Management, 2010, vol. 35, issue 2, 145-163

Abstract: The governance-performance literature is characterized by its inability to reach a consensus regarding the nature of the relation. We posit that these inconsistent findings are symptomatic of inadequacies in the econometric techniques employed when adjusting for all forms of endogeneity. To test this, we fit a comprehensive model of performance and governance using a range of econometric techniques. Once a dynamic generalized method of moments (GMM) specification robust to all forms of endogeneity is employed, we observe no causal relation between governance and firm performance, suggesting that apparently significant relations uncovered by pooled ordinary least squares (OLS) and fix-effects models are the result of spurious correlations.

Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:35:y:2010:i:2:p:145-163

DOI: 10.1177/0312896210370079

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