Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Interpreting Empirical Estimates of the Effect of Corporate Governance

Interpreting Empirical Estimates of the Effect of Corporate Governance Empirical studies of corporate governance address potential endogeneity problems, but fail to place endogeneity in the context of a model and ignore the possibility of disparate treatment effects across companies. This paper tackles these defects. The model and analysis in the paper demonstrate that: (1) Valid and positive estimates for the effect of governance can only arise if there is random variation in governance and governance is systematically underproduced, or governance is chosen randomly without bias and the randomness under study concerns a subpopulation with below-average governance. (2) Governance models that correct for endogeneity using subsamples of firms, fixed effects, or instrumental variables estimates focus on subpopulations of companies that may have different responses to a governance treatment than the average firm. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Law and Economics Review Oxford University Press

Interpreting Empirical Estimates of the Effect of Corporate Governance

American Law and Economics Review , Volume 10 (1) – Apr 16, 2008

Loading next page...
 
/lp/oxford-university-press/interpreting-empirical-estimates-of-the-effect-of-corporate-governance-9cmkvQ5IHv
Publisher
Oxford University Press
Copyright
The Author 2008. Published by Oxford University Press on behalf of the American Law and Economics Association. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org
Subject
Articles
ISSN
1465-7252
eISSN
1465-7260
DOI
10.1093/aler/ahn005
Publisher site
See Article on Publisher Site

Abstract

Empirical studies of corporate governance address potential endogeneity problems, but fail to place endogeneity in the context of a model and ignore the possibility of disparate treatment effects across companies. This paper tackles these defects. The model and analysis in the paper demonstrate that: (1) Valid and positive estimates for the effect of governance can only arise if there is random variation in governance and governance is systematically underproduced, or governance is chosen randomly without bias and the randomness under study concerns a subpopulation with below-average governance. (2) Governance models that correct for endogeneity using subsamples of firms, fixed effects, or instrumental variables estimates focus on subpopulations of companies that may have different responses to a governance treatment than the average firm.

Journal

American Law and Economics ReviewOxford University Press

Published: Apr 16, 2008

Keywords: JEL Classification K22 G34

There are no references for this article.