Abstract

http://ssrn.com/abstract=988561
 
 

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Endogeneity and Empirical Accounting Research


David F. Larcker


Stanford University - Graduate School of Business

Tjomme O. Rusticus


London Business School; Northwestern University - Kellogg School of Management


European Accounting Review, Vol. 16, No. 1, pp. 207-215, May 2007

Abstract:     
The discussion reinforces and expands on some of the fundamental issues about endogeneity raised by Chenhall and Moers (European Accounting Review, 2007, pp. 173-195). We focus on the econometric problems researchers encounter when investigating the performance effects of some endogenous firm choice. Our points are illustrated using the classic research question about the relation between managerial equity ownership and firm value. We consider cases where ownership is treated as an exogenous, endogenous and 'partially' endogenous variable. We argue treating ownership as an exogenous variable is seriously flawed. Unfortunately, when ownership is at least partially endogenous, it is necessary for empirical researchers to identify exogenous variables that are the determinants of the ownership choice. This calls for better theory to guide the empirical work.

Keywords: Endogeneity, instrumental variables, managerial ownership

JEL Classification: C30, G30, M40

Accepted Paper Series


Not Available For Download

Date posted: May 24, 2007  

Suggested Citation

Larcker, David F. and Rusticus, Tjomme O., Endogeneity and Empirical Accounting Research. European Accounting Review, Vol. 16, No. 1, pp. 207-215, May 2007. Available at SSRN: http://ssrn.com/abstract=988561

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
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