Measurement Error in Multiple Equations: Tobin's q and Corporate Investment, Saving, and Debt

66 Pages Posted: 2 Aug 2019 Last revised: 11 Aug 2019

See all articles by Karim Chalak

Karim Chalak

University of Virginia

Daniel Kim

BI Norwegian Business School

Date Written: July 25, 2019

Abstract

We characterize the sharp identification regions for the coefficients in a system of linear equations that share an explanatory variable measured with classical error. We demonstrate the identification gain from analyzing the equations jointly. We derive the sharp identification regions under any configuration of three auxiliary assumptions. These restrict the "noise-to-signal" ratio, the coefficients of determination, and the signs of the correlations among the cross-equation disturbances. For inference, we implement results on intersection bounds. The application studies the effects of cash flow on the investment, saving, and debt of firms when Tobin's q serves as a proxy for marginal q.

Keywords: cash flow, measurement error, multiple equations, partial identification, sensitivity analysis, Tobin's q

JEL Classification: C31, G30

Suggested Citation

Chalak, Karim and Kim, Daniel, Measurement Error in Multiple Equations: Tobin's q and Corporate Investment, Saving, and Debt (July 25, 2019). Journal of Econometrics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3428200 or http://dx.doi.org/10.2139/ssrn.3428200

Karim Chalak (Contact Author)

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States

Daniel Kim

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0484
Norway

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