Endogeneity in Empirical Corporate Finance
Michael R. Roberts
The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER)
Toni M. Whited
University of Rochester - Simon Graduate School of Business
OCtober 5, 2012
Simon School Working Paper No. FR 11-29
This chapter discusses how applied researchers in corporate finance can address endogeneity concerns. We begin by reviewing the sources of endogeneity - omitted variables, simultaneity, and measurement error - and their implications for inference. We then discuss in detail a number of econometric techniques aimed at addressing endogeneity problems including: instrumental variables, difference-in-differences estimators, regression discontinuity design, matching methods, panel data methods, and higher order moments estimators. The unifying themes of our discussion are the emphasis on intuition and the applications to corporate finance.
Number of Pages in PDF File: 97
Keywords: Instrumental Variables, Difference-in-Differences Estimators,Regression Discontinuity Designs, Matching Estimators, Measurement Error
JEL Classification: G3, C21, C23, C26working papers series
Date posted: January 28, 2011 ; Last revised: October 6, 2012
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