Regression Analysis and Governance

  • Anju Seth
  • Stephen Bowden


This paper explores the use of regression analysis in conducting research on corporate governance. We highlight that combinations of governance mechanisms together act to mitigate the shareholder-manager agency problem, and examine the implications of this idea for designing empirical research on corporate governance using regression models. We outline the consequences of the omitted variable problem that arises if linkages between governance mechanisms are ignored. We describe two research studies to illustrate how linear regression and logistic regression may be used to examine the complex interlinkages among multiple governance mechanisms. These studies demonstrate approaches to model specification issues that arise in governance research, and also highlight how research designs may be constructed to avoid violation of important assumptions of the regression model.


Corporate Governance Ownership Structure Governance Mechanism Free Cash Flow Ownership Concentration 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Agrawal, A. Knoeber, C., (1996), “Firm performance and mechanisms to control agency problems between managers and shareholders,” Working Paper, North Carolina State University.Google Scholar
  2. Aldrich, J.H. Nelson, F.D., (1984), Linear Probability, Logit and Probit Models, Beverly Hills, CA: Sage Publications.Google Scholar
  3. Allen, W., (1990), “Independent directors in MBO transactions: Are they fact or fantasy?” Business Lawyer, 45, pp 2055–2063.Google Scholar
  4. Amemiya, Takeshi, (1981), Qualitative response models: A survey», Journal of Economic Literature, 19, pp 1483–1536.Google Scholar
  5. Bass, F.M., Cattin, P. Wittink, D.R., (1978), “Firm effects and industry effects in the analysis if market structure and profitability”, Journal of Marketing Research, February: pp 3–10.Google Scholar
  6. Brickley, J.A. James, C.M., (1987), “The takeover market, corporate board composition, and ownership structure: the case of banking”, Journal of Law and Economics, 30, pp 161–180.CrossRefGoogle Scholar
  7. Clair, R.T., Tucker, P., (1991), “Interstate banking and the federal reserve: A historical perspective.” In R.W. Kolb (ed.): Financial Institutions and Markets: A Reader, pp 287–306, Miami: Kolb Publishing.Google Scholar
  8. Corporate Data Exchange, Inc., (1980), C.D.E. Stock Ownership Directory: Fortune 500. New York: C.D.E.Google Scholar
  9. Demsetz, H. Lehn, K., (1985), “The structure of corporate ownership: Causes and consequences.” Journal of Political Economy, 93, pp 1155–1177.CrossRefGoogle Scholar
  10. Easterbrook, F. H. Fischel, D.R., (1991), The Economic Structure of Corporate Law. Cambridge, MA: Harvard University Press.Google Scholar
  11. Easterwood, J., Seth, A. Singer, R.,(1995), “Limits on managerial discretion in management buyouts: The effectiveness of institutional, market and legal mechanisms,” Working Paper, Virginia Tech.Google Scholar
  12. Fama, E.F., (1980), “Agency problems and the theory of the firm.” Journal of Political Economy, 88, pp 288–307.CrossRefGoogle Scholar
  13. Fama, E. F. Jensen, M.C., (1983), “Separation of ownership and control.” Journal of Law and Economics, 26, pp 327–349.CrossRefGoogle Scholar
  14. Glassman, C. A. Rhoades, S. A., (1980), “Owner vs. manager control effects on bank performance.” The Review of Economics and Statistics, 62, pp 263–270.CrossRefGoogle Scholar
  15. Grossman, S. Hart, O. D., (1980), “Corporate financial structure and managerial incentives.” In J. McCall (Ed.), The economics of information and uncertainty, pp 102–137. Chicago: University of Chicago Press.Google Scholar
  16. Hatten, K.J. Schendel, D.E., (1977), “Heterogeneity within an industry: Firm conduct in the U.S. brewing industry, 1952–71”, Journal of Industrial Economics, 26 (2), pp 97–113.CrossRefGoogle Scholar
  17. Herzel, L., Coiling, D., (1984), “Establishing procedural fairness in squeeze-out mergers after Weinberger v. UOP,” Business Lawyer, 39, pp 1525–1539.Google Scholar
  18. Herzel, L., Colling, D. Carlson, J., (1986), “Misunderstanding lockups,” Securities Regulation Law Journal, 14, pp 150–180.Google Scholar
  19. Hill, C. W. L. Snell, S. A., (1989), “Effects of ownership structure on corporate productivity.” Academy of Management Journal, 32, pp 25–46.CrossRefGoogle Scholar
  20. Jensen, M. C., (1986), “Agency costs of free cash flow, corporate finance and takeovers.” American Economic Review, Papers and Proceedings, 76 (May), pp 326–329.Google Scholar
  21. Johnston, J. (1984), Econometric Methods. New York: McGraw Hill.Google Scholar
  22. Kennedy, P., (1991), A Guide to Econometrics. Cambridge: MIT Press.Google Scholar
  23. Kmenta, J., (1986), Elements of Econometrics. New York: Macmillan.Google Scholar
  24. Kosnik, R., (1990), “Effects of board demography and directors’ incentives on corporate greenmail decisions.” Academy of Management Journal, 33, pp 129–150.CrossRefGoogle Scholar
  25. Lee, C., Rosenstein, S., Rangan, N. Davidson, W., (1992), “Board composition and shareholder wealth: The case of management buyouts,” Financial Management, 21, pp 58–72.CrossRefGoogle Scholar
  26. Lehn, K., Poulsen, A., (1989), “Free cash flow and stockholder gains in going private transaction,” Journal of Finance, 44, pp 771–787.CrossRefGoogle Scholar
  27. Lindenberg, E. B. Ross, S.A.,(1981), Tobin’s q ratio and industrial organization», Journal of Business, 54, pp 1–33.Google Scholar
  28. Macey, J., (1990), “Auction theory, MBOs and property rights in corporate assets,” Wake Forest Law Review, 25, pp 85–119.Google Scholar
  29. McCloskey, D. N. Ziliak, S.T.,(1996), The Standard Error of Regressions», Journal of Economic Literature, 34, pp 97–114.Google Scholar
  30. Morck, R., Shleifer, A., Vishny, R. W., (1988), “Management ownership and market valuation: An empirical analysis.” Journal of Financial Economics, 20, pp 293–315.CrossRefGoogle Scholar
  31. Rediker, K. Seth, A., (1995), “Board of directors and substitution effects of alternative governance mechanisms,” Strategic Management Journal, 16, pp 85–99.CrossRefGoogle Scholar
  32. Rosenbaum, V., (1987), Takeover Defenses of The Fortune 500 Investor Responsibility Research Center.Google Scholar
  33. Seth, A. Rediker, K., 1992/3, “Designing corporate governance structures,” in H.E. Glass M.A. Hovde (Ed.$),Handbook of Business Strategy 1992/3 Yearbook: Chapter 22. Boston: Warren Gorham Lamont.Google Scholar
  34. Simpson, S., (1988), “The emerging role of the special committee - Ensuring business judgment rule protection in the context of management leveraged buyouts and other transactions involving conflicts of interest”, Business Lawyer, 43, February, pp 665–690.Google Scholar
  35. Stone, E.F. Hallenbeck, J.R., (1984), “Some issues associated with the use of moderated regression.” Organizational Behavior and Human Performance, 34, pp 195–213.CrossRefGoogle Scholar
  36. Welsch, R.E., (1986), “Comment,” Statistical Science, 1, pp 403–405.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 1997

Authors and Affiliations

  • Anju Seth
    • 1
  • Stephen Bowden
    • 1
  1. 1.College of Commerce and Business AdministrationUniversity of Illinois at Urbana-ChampaignUSA

Personalised recommendations