To estimate equation (5) we have to take into account the potential endogeneity of financial performance and board appointment decisions. Furthermore, including the lagged dependent variable as an independent variable makes the fixed effects estimator not only biased, but also inconsistent. To overcome this problem an instrumental variables (IV) estimator could be used. However, appropriate governance instruments are not easy to find. We therefore make use of the dynamic panel data (DPD) estimator which employs a matrix of lagged endogenous variables as instruments timed from t-2 to t-6. The DPD technique therefore creates instruments by its construction. All our models.
