Comments on: 'The Trouble with Instruments: Re-Examining Shock-Based IV Designs' by Atanasov and Black

12 Pages Posted: 1 Dec 2015

See all articles by Ran Duchin

Ran Duchin

University of Washington - Michael G. Foster School of Business

John G. Matsusaka

University of Southern California - Marshall School of Business; USC Gould School of Law

Oguzhan Ozbas

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: November 22, 2015

Abstract

Atanasov and Black (2015) (AB) analyzes potential limitations of empirical studies that use shock-based IV designs, focusing specifically on our article that studies the effect of board independence on firm value (Duchin et al., 2010). With regard to our study, AB raises three concerns with our analysis. This note presents our reaction to AB’s analysis. We agree with two of the concerns in the abstract; it turns out they do not matter for the substance of our analysis. We disagree on the critical issue concerning selection of covariates. As a guide to future research, we highlight the nature of the disagreement, and explain why we believe covariates should be motivated by theory, and why an a theoretical approach to selecting covariates can result in failure to identify effects that actually exist. An important lesson from the analysis is that researchers should exercise caution when including ad-hoc covariates in empirical specifications. We offer concluding thoughts about empirical research and causal inference.

Keywords: Outside directors, Boards, Instrumental Variables, Quasi experiments

JEL Classification: C13, G34

Suggested Citation

Duchin, Ran and Matsusaka, John G. and Ozbas, Oguzhan, Comments on: 'The Trouble with Instruments: Re-Examining Shock-Based IV Designs' by Atanasov and Black (November 22, 2015). Available at SSRN: https://ssrn.com/abstract=2697098 or http://dx.doi.org/10.2139/ssrn.2697098

Ran Duchin (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

John G. Matsusaka

University of Southern California - Marshall School of Business ( email )

Department of Finance & Business Economics
Los Angeles, CA 90089
United States
213-740-6495 (Phone)
213-740-6650 (Fax)

USC Gould School of Law

699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-740-6495 (Phone)

Oguzhan Ozbas

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-0781 (Phone)
213-740-6650 (Fax)

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