Abstract

http://ssrn.com/abstract=694824
 
 

References (87)



 
 

Citations (172)



 


 



On the Use of Instrumental Variables in Accounting Research


David F. Larcker


Stanford University - Graduate School of Business

Tjomme O. Rusticus


London Business School; Northwestern University - Kellogg School of Management

May 16, 2008


Abstract:     
Instrumental variable (IV) methods are commonly used in accounting research (e.g., earnings management, corporate governance, executive compensation, and disclosure research) when the regressor variables are endogenous. While IV estimation is the standard textbook solution to mitigating endogeneity problems, the appropriateness of IV methods in typical accounting research settings is not obvious. Drawing on recent advances in statistics and econometrics, we identify conditions under which IV methods are preferred to OLS estimates and propose a series of tests for research studies employing IV methods. We illustrate these ideas by examining the relation between corporate disclosure and the cost of capital.

Number of Pages in PDF File: 63

Keywords: Endogeneity, instrumental variables, disclosure, cost of capital

JEL Classification: C30, G30, M41, M43

working papers series


Download This Paper

Date posted: April 7, 2005 ; Last revised: November 13, 2009

Suggested Citation

Larcker, David F. and Rusticus, Tjomme O., On the Use of Instrumental Variables in Accounting Research (May 16, 2008). Available at SSRN: http://ssrn.com/abstract=694824 or http://dx.doi.org/10.2139/ssrn.694824

Contact Information

David F. Larcker
Stanford University - Graduate School of Business ( email )
Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Tjomme O. Rusticus (Contact Author)
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
Feedback to SSRN


Paper statistics
Abstract Views: 7,927
Downloads: 3,026
Download Rank: 1,637
References:  87
Citations:  172

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.531 seconds