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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 Business School; National Bureau of Economic Research

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

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Date posted: January 28, 2011 ; Last revised: October 6, 2012

Suggested Citation

Roberts, Michael R. and Whited, Toni M., Endogeneity in Empirical Corporate Finance (OCtober 5, 2012). Simon School Working Paper No. FR 11-29. Available at SSRN: http://ssrn.com/abstract=1748604 or http://dx.doi.org/10.2139/ssrn.1748604

Contact Information

Michael R. Roberts (Contact Author)
The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER) ( email )
3620 Locust Walk, #2320
Philadelphia, PA 19104-6365
United States
(215) 573-9780 (Phone)
HOME PAGE: http://finance.wharton.upenn.edu/~mrrobert/
Toni M. Whited
University of Rochester - Simon Business School ( email )
Rochester, NY 14627
United States
HOME PAGE: http://toni.marginalq.com

National Bureau of Economic Research ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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