Endogeneity in Accounting and Finance Research: Natural Experiments as a State-of-the-Art Solution

28 Pages Posted: 20 Oct 2014

See all articles by Jennifer Kathleen Gippel

Jennifer Kathleen Gippel

Australian National University (ANU); Financial Research Network (FIRN)

Tom Smith

University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

Yushu Zhu

University of Queensland - Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 20, 2014

Abstract

This paper provides a discussion of endogeneity as it relates to finance and accounting research. We discuss the text book solutions: two stage least squares, instrumental variables, differenced GMM and System GMM and provide a unifying framework showing how they are related. We consider the limitations of these techniques and then detail a state-of-the-art solution — utilizing a natural experiment as a way of mitigating endogeneity and building stronger theory.

Keywords: Corporate governance, endogeneity, natural or quasi experiment

Suggested Citation

Gippel, Jennifer Kathleen and Smith, Tom M. and Zhu, Yushu, Endogeneity in Accounting and Finance Research: Natural Experiments as a State-of-the-Art Solution (October 20, 2014). Available at SSRN: https://ssrn.com/abstract=2512098 or http://dx.doi.org/10.2139/ssrn.2512098

Jennifer Kathleen Gippel (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Tom M. Smith

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Yushu Zhu

University of Queensland - Business School ( email )

Blair Drive
Brisbane
Australia

HOME PAGE: http://https://www.business.uq.edu.au/staff/yushu-elizabeth-zhu

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