Measurement Malaise in Strategic Management Studies: The Case of Corporate Governance Research

We adopt a construct validity lens to provide a critical reexamination of established corporate governance research. In particular, we focus on the body of work relying on the theoretical bases of agency theory and involving boards of directors' independence, CEO duality, equity holdings, and their relationships to corporate financial performance. We offer a five-step protocol involving the following components: (1) establishing the base rate for the phenomenon in question, (2) evaluating the extent to which the dependent variables are germane, (3) evaluating the extent to which the independent variables are germane, (4) determining whether explanatory power is improved as a consequence of improved measurement, and (5) concluding whether previously established estimates should be revised. We implemented the proposed protocol and used alternative measures that reduce threats to construct validity. Results yielded substantially higher estimates of relationships in corporate governance research. Future research can adopt the proposed protocol to understand whether a similar improvement in explanatory power could be achieved in other research domains.