Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93432
Authors: 
Wessels, Roberto E.
Wansbeek, Tom J.
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4599
Abstract: 
This paper presents estimates from a latent variables model of the relation between corporate governance and financial performance. We use data on large US corporations to estimate the correlation, conditional on the firms' investment opportunity set, between governance and performance. We find that this correlation is statistically speaking zero. This result is consistent with the equilibrium view (Demsetz, 1983) in which firms optimize corporate governance arrangements subject to the constraints imposed by the investment opportunity set, such that observed corporate governance arrangements and firm performance are uncorrelated. The intuition behind this statement is that, if governance and performance were correlated, performance could be improved by making changes to the governance arrangements, which is at odds with an equilibrium situation.
Subjects: 
corporate governance
firm behavior
hypothesis testing
errors in variables
JEL: 
C38
G34
L20
M52
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.