Shock-Based Causal Inference in Corporate Finance and Accounting Research

Critical Finance Review, 2016, vol. 5, pp. 207-304

ECGI - Finance Working Paper 448/2015

Northwestern Law & Econ Research Paper 11-08

98 Pages Posted: 8 May 2013 Last revised: 14 Jan 2017

Date Written: December 24, 2016


We study shock-based methods for credible causal inference in corporate finance research. We focus on corporate governance research, survey 13,461 papers published between 2001 and 2011 in 22 major accounting, economics, finance, law, and management journals; and identify 863 empirical studies in which corporate governance is associated with firm value or other characteristics. We classify the methods used in these studies and assess whether they support a causal link between corporate governance and firm value or another outcome. Only a stall minority of studies have convincing causal inference strategies. The convincing strategies largely rely on external shocks – usually from legal rules – often called “natural experiments”. We examine the 74 shock-based papers and provide a guide to shock-based research design, which stresses the common features across different designs and the value of using combined designs.

Keywords: causal inference, shock-based research design, natural experiments, legal shock, difference-in-differences, regression discontinuity, instrumental variables, event study, covariate balance

JEL Classification: K20, C10, C20

Suggested Citation

Atanasov, Vladimir A. and Black, Bernard S., Shock-Based Causal Inference in Corporate Finance and Accounting Research (December 24, 2016). Critical Finance Review, 2016, vol. 5, pp. 207-304, ECGI - Finance Working Paper 448/2015, Northwestern Law & Econ Research Paper 11-08, Available at SSRN: or

Vladimir A. Atanasov

William and Mary - Raymond A. Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

Bernard S. Black (Contact Author)

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
312-503-2784 (Phone)

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