Test power properties of within-firm estimators of ownership and board-related explanatory variables with low time variation
64 Pages Posted: 1 Nov 2018 Last revised: 11 Aug 2021
Date Written: July 1, 2021
Corporate governance research is often limited in its ability to employ within-firm estimators, which address time-invariant endogeneity, when the variables of interest exhibit low time variation (for example, ownership and board independence). The problem is further exacerbated if data for multiple points in time needs to be hand-collected. We offer simulation-based methodological guidance to improve the statistical power of within-firm estimators in the presence of low time variation. We illustrate the usefulness of our simulation results by replicating two influential studies on ownership and board independence and extending them with a within-firm estimator. Based on widely used databases as well as a novel granular database, we document the different degrees and nature of time variation of ownership and board independence across jurisdictions and subgroups by listed status, family control and complexity of ownership structure. Researchers can use our findings to make empirical design decisions and informed choices about the frequency of sampling and/or hand collection of fewer non-consecutive time periods that ensure sufficient time variation and statistical power.
Keywords: controlling ownership; ultimate cash flow rights; control rights; ownership wedge; board independence; low time variation; family firms; within-firm estimator; pyramid structures
JEL Classification: G15, G32
Suggested Citation: Suggested Citation