Methodological Variation in Empirical Corporate Finance

62 Pages Posted: 4 Jan 2019 Last revised: 3 Feb 2021

See all articles by Todd Mitton

Todd Mitton

Brigham Young University - J. Willard and Alice S. Marriott School of Management

Date Written: January 7, 2021

Abstract

I document large variation in empirical methodology in corporate finance regressions in top finance journals. Although methodological variation allows for customization of empirical tests to fit specific theories, it can also enable excessive reporting of statistically significant results. For example, given discretion over ten routine methodological decisions, a researcher could report that over 70% of randomly generated variables are statistically significant determinants of leverage at the 5% level. The methodological decisions that impact statistical significance the most are dependent variable selection, variable transformation, and outlier treatment. I discuss remedies that can mitigate the negative effects of methodological variation.

Keywords: corporate finance, empirical methodology, statistical significance

JEL Classification: C18, C52, G30

Suggested Citation

Mitton, Todd, Methodological Variation in Empirical Corporate Finance (January 7, 2021). Available at SSRN: https://ssrn.com/abstract=3304875 or http://dx.doi.org/10.2139/ssrn.3304875

Todd Mitton (Contact Author)

Brigham Young University - J. Willard and Alice S. Marriott School of Management ( email )

Provo, UT 84602
United States
801-422-1763 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
217
Abstract Views
763
rank
172,879
PlumX Metrics