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Endogeneity and the corporate governance - performance relation

Journal Article


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.

UOW Authors


  •   Schultz, Emma L. (external author)
  •   Tan, David
  •   Walsh, Kathleen (external author)

Publication Date


  • 2010

Citation


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

Scopus Eid


  • 2-s2.0-79251476512

Has Global Citation Frequency


Number Of Pages


  • 18

Start Page


  • 145

End Page


  • 163

Volume


  • 35

Issue


  • 2

Place Of Publication


  • United Kingdom

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.

UOW Authors


  •   Schultz, Emma L. (external author)
  •   Tan, David
  •   Walsh, Kathleen (external author)

Publication Date


  • 2010

Citation


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

Scopus Eid


  • 2-s2.0-79251476512

Has Global Citation Frequency


Number Of Pages


  • 18

Start Page


  • 145

End Page


  • 163

Volume


  • 35

Issue


  • 2

Place Of Publication


  • United Kingdom