Endogeneity and the corporate governance - performance relation

Emma L. Schultz, David T. Tan and Kathleen Walsh ()

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

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.

Pages: 19 pages
Date: 2010-01-01
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Citations: View citations in EconPapers (153)

Published in: Schultz, E. L., Tan, D. T. and Walsh, K. D., 2010, "Endogeneity and the corporate governance - performance relation", Australian Journal of Management, 35(2), 145-163.

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