Endogeneity in Financial Performance and Board Composition : The Case of Closed-End Funds

While research has documented that board of director composition may be important in certain agency-related situations, the impact of board composition on overall financial performance is not at all clear. One problem may be that board of director composition and financial performance are endogenously determined. Using causality tests in panel regressions with three years of data for 130 closed-end mutual funds, we find very limited evidence of endogeneity. We do find that prior financial performance impacts board composition, but the relation depends on how we define board composition. The evidence that board composition influences financial performance is very limited