Board Composition, Managerial Ownership, and Firm Performance: An Empirical Analysis

Our objective is to examine the sensitivity of simultaneous equations techniques in corporate governance research. We model Tobin's Q, board composition, and managerial ownership using a three‐equation instrumental variables approach, with two specifications and four instruments. We find that the variables are jointly determined. However, results depend strongly on the specification of the model and the instruments. We conclude that results using simultaneous equations methods must be interpreted cautiously, OLS estimates should not be casually dismissed, and that sensitivity analysis is essential when estimating an empirical model whose structure is uncertain.