Interpreting Empirical Estimates of the Effect of Corporate Governance

32 Pages Posted: 26 Mar 2008 Last revised: 28 Apr 2008

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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.

Keywords: Corporate Governance, Endogeneity, Treatment Effects

Suggested Citation

Listokin, Yair, Interpreting Empirical Estimates of the Effect of Corporate Governance. American Law and Economics Review, Forthcoming , Available at SSRN:

Yair Listokin (Contact Author)

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
203-436-2567 (Phone)

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