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Endogeneity in Empirical Corporate FinanceMichael R. RobertsThe Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER) Toni M. WhitedUniversity of Rochester - Simon Graduate School of Business OCtober 5, 2012 Simon School Working Paper No. FR 11-29 Abstract: 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, C26 working papers seriesDate posted: January 28, 2011 ; Last revised: October 6, 2012Suggested CitationContact Information
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