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The problem of causality in corporate governance research: The case of governance indexes and firm valuation

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  • Jimmy A. Saravia
  • Silvia Saravia-Matus

Abstract

In recent years the problem of the determination of causality has become an increasingly important question in the field of corporate governance. This paper reviews contemporary literature on the topic and finds that the current approach is to attempt to determine causality empirically and that the problem remains unresolved. After explaining the reasons why it is not possible to attempt to determine causality using real world data without falling prey to a logical fallacy, this paper discusses an approach to deal with the problem. In particular, the paper argues that the appropriate approach for the problem is to build theories, with causality featuring as a part of those theories, and then to test those theories both for logical and empirical consistency.

Suggested Citation

  • Jimmy A. Saravia & Silvia Saravia-Matus, 2015. "The problem of causality in corporate governance research: The case of governance indexes and firm valuation," Documentos de Trabajo de Valor Público 12451, Universidad EAFIT.
    • Handle: RePEc:col:000122:012451
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    File URL: http://hdl.handle.net/10784/4648
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    References listed on IDEAS

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    7. Jimmy A. Saravia, 2014. "Why has the literature on corporate governance and firm performance yielded mixed results?," Documentos de Trabajo de Valor Público 10914, Universidad EAFIT.
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    More about this item

    Keywords

    Corporate Governance; Agency Costs; Firm Valuation; Governance indexes; Boards of Directors; Entrenchment; Shareholder Rights;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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