Endogeneity and the dynamics of internal corporate governance

Corporate fraud culture: Re‐examining the corporate governance and performance relation

“…For endogenous variables, the lags of 1 and higher of the differences are available as valid instruments, and the current and lags of differences in the predetermined variables are employed as instruments (Blundell and Bond, 1998;and Roodman, 2009). The lag specification of the internal instruments is consistent with Wintoki et al (2012) and Schultz et al (2010).…”

“…The dynamic GMM specification uncovers any causal effects of corporate governance mechanisms on firm outcomes despite the presence of endogeneity (Wintoki et al, 2012).…”

“…Indeed, there is ample research suggesting that corporate governance is an endogenously determined characteristic of the firm (Hermalin and Weisbach, 2003;Brown et al, 2011;and Coles et al, 2012). The dynamic generalised method of moments (GMM) panel models can be applied to the corporate governance and firm performance relation (Pathan and Skully, 2010;Schultz et al, 2010;Pham et al, 2011;and Wintoki et al, 2012) to account for the various forms of endogeneity that may be present 2 .…”

“…firms that have experienced at least one occurrence of fraud) in the period of 2000 to 2007, the corporate governance and firm performance relation is analysed within the dynamic GMM framework that corrects for the influence of unobserved heterogeneity, dynamic endogeneity and simultaneity. This will discern whether adjustments in corporate governance have a significant effect on firm performance for companies that are vulnerable to a corporate culture of fraud, to compare the results from previous studies that have reported no relation between governance and firm performance (Schultz et al, 2010;Pham et al, 2011;and Wintoki et al, 2012).…”

What Types of Companies Have Female and Foreign Directors?

“…The fact that board size has a positive association with the presence of female and foreign directors suggests that an increase in the board size can be an option to diversify the composition of the board. Earlier studies suggest that board size has a negative association with the market valuation of a company (e.g., Yermack, 1996), but more recent studies indicate that the optimal board size depends on various business characteristics and that the reduction of the board size does not assure better company performance (e.g., Boone et al, 2007;Coles et al, 2008;Linck et al, 2008;Wintoki et al, 2012). For some companies, the benefit of diversifying the board composition may outweigh the cost of increasing the board members.…”