Literature Review Women on boards and in TMTS and firm performance 45 topic of endogeneity in empirical corporate finance They define endogeneity roughly as a correlation between the explanatory variable and the error term in the regression Adams Hermalin and Weis bach 2010 state This endogeneity creates estimation pro blems if governance choices are made on the basis of unobservables correla ted with the error term in the regression equations being estimated Governan ce structures arise endogenously because economic actors choose them in respon se to the governance issues they face Adams Hermalin Weisbach 2010 p 59 Happ 2016 discusses the issue of endogeneity in his literature review on the influence of ownership and capital structure on firm performance Several causes for endogeneity can be identified unob servable heterogeneity simultaneity and reverse causation see also Happ 2016 whereas the lat ter can be understood as one concrete example for simultaneity In the case of unobservable he terogeneity the dependent and the independent variable are both impacted by the same exogenous factor which cannot be measured directly Happ 2016 The presence of omitted variables and vari ables being measured incorrectly may be classified as subcategories of unobservable heterogeneity Happ 2016 Omitted variable bias occurs when one or more important causal factors are not con sidered in the model Due to the heterogeneity of the objects of study such as firms corporate boards or TMTs with a view to various hard to observe dimensions the problem is particularly serious in corporate finance Roberts Whited 2012 With respect to the topic of gender diversity and firm performance omitted variables might have an ef fect on both the selection of directors and perfor mance and could thus lead to spurious correlations between the variables of interest Adams Ferrei ra 2009 Simultaneity is present from an econo metric point of view if dependent and independent variable are determined in equilibrium in other words left hand side y and right hand side one or more x s of the equation are determined si multaneously Roberts Whited 2012 Following Demsetz and Lehn 1985 it is to be expected that board composition as does ownership structure will vary systematically in ways coherent with value maximization Boards are selected under the objective of maximizing shareholder wealth With respect to reverse causation e g Hermalin Weis bach 1998 as one form of simultaneity it is pos sible that having women on the board improves firm performance It is also conceivable however that well performing firms decide to increase fe male representation on their boards It could also mean that a financially well performing firm has greater attractiveness for a female CEO Strøm et al 2014 also because women have freedom of choice given the scarcity of experienced female managers Farrell Hersch 2005 Thus board di versity could affect firm value and vice versa Car ter et al 2003 Wintoki Linck and Netter 2012 note that most corporate finance researchers would acknowled ge unobservable heterogeneity and simultaneity as possible sources of endogeneity They point out that scholars often ignore a third source that arises from the possibility that current values of governance variables are a function of past firm performance Wintoki et al 2012 p 582 Not considering this issue could have serious conse quences for inference Further potential endogeneity issues that may oc cur when investigating the relationship between gender diversity in TMTs and firm performance Women on boards and in TMTs and firm performance

Vorschau DIRK-Forschungsreihe Band 21 Workforce diversity and personal policies Seite 45
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