Propensity Score Matching in Accounting Research

Posted: 9 Feb 2014 Last revised: 13 Feb 2017

See all articles by Jonathan E. Shipman

Jonathan E. Shipman

University of Arkansas

Quinn Thomas Swanquist

University of Alabama - Culverhouse School of Accountancy

Robert Lowell Whited

North Carolina State University

Date Written: March 14, 2016

Abstract

Propensity score matching (PSM) has become a popular technique for estimating average treatment effects (ATEs) in accounting research. In this study, we discuss the usefulness and limitations of PSM relative to more traditional multiple regression (MR) analysis. We discuss several PSM design choices and review the use of PSM in 86 articles in leading accounting journals from 2008-2014. We document a significant increase in the use of PSM from 0 studies in 2008 to 26 studies in 2014. However, studies often oversell the capabilities of PSM, fail to disclose important design choices, and/or implement PSM in a theoretically inconsistent manner. We then empirically illustrate complications associated with PSM in three accounting research settings. We first demonstrate that when the treatment is not binary, PSM tends to confine analyses to a subsample of observations where the effect size is likely to be smallest. We also show that seemingly innocuous design choices greatly influence sample composition and estimates of the ATE. We conclude with suggestions for future research considering the use of matching methods.

Keywords: Propensity Score Matching, Endogeneity, Sample Composition, Research Methods

Suggested Citation

Shipman, Jonathan E. and Swanquist, Quinn Thomas and Whited, Robert Lowell, Propensity Score Matching in Accounting Research (March 14, 2016). The Accounting Review: January 2017, Vol. 92, No. 1, pp. 213-244.. Available at SSRN: https://ssrn.com/abstract=2392858 or http://dx.doi.org/10.2139/ssrn.2392858

Jonathan E. Shipman

University of Arkansas ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Quinn Thomas Swanquist

University of Alabama - Culverhouse School of Accountancy ( email )

Tuscaloosa, AL 35487
United States

Robert Lowell Whited (Contact Author)

North Carolina State University ( email )

Raleigh, NC 27695
United States

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