Revisiting Gaussian Copulas to Handle Endogenous Regressors

Journal of the Academy of Marketing Science 2021

Posted: 12 Dec 2021

See all articles by Jan-Michael Becker

Jan-Michael Becker

University of Cologne - Department of Marketing and Brand Management

Dorian Proksch

HHL Leipzig Graduate School of Management

Christian M. Ringle

Hamburg University of Technology (TUHH)

Date Written: October 2021

Abstract

Marketing researchers are increasingly taking advantage of the instrumental variable (IV)-free Gaussian copula approach. They use this method to identify and correct endogeneity when estimating regression models with non-experimental data. The Gaussian copula approach’s original presentation and performance demonstration via a series of simulation studies focused primarily on regression models without intercept. However, marketing and other disciplines’ researchers mainly use regression models with intercept. This research expands our knowledge of the Gaussian copula approach to regression models with intercept and to multilevel models. The results of our simulation studies reveal a fundamental bias and concerns about statistical power at smaller sample sizes and when the approach’s primary assumptions are not fully met. This key finding opposes the method’s potential advantages and raises concerns about its appropriate use in prior studies. As a remedy, we derive boundary conditions and guidelines that contribute to the Gaussian copula approach’s proper use. Thereby, this research contributes to ensuring the validity of results and conclusions of empirical research applying the Gaussian copula approach.

Keywords: Endogeneity, Gaussian copula, Intercept, Linear regression, Multilevel models, Sample size, Simulation

Suggested Citation

Becker, Jan-Michael and Proksch, Dorian and Ringle, Christian M., Revisiting Gaussian Copulas to Handle Endogenous Regressors (October 2021). Journal of the Academy of Marketing Science 2021, Available at SSRN: https://ssrn.com/abstract=3941728

Jan-Michael Becker

University of Cologne - Department of Marketing and Brand Management ( email )

Albertus-Magnus-Platz 1
Cologne, 50931
Germany

Dorian Proksch

HHL Leipzig Graduate School of Management ( email )

Jahnallee 59
Leipzig, 04109

Christian M. Ringle (Contact Author)

Hamburg University of Technology (TUHH) ( email )

Am Schwarzenberg-Campus 4
Hamburg, 21073
Germany

HOME PAGE: http://www.tuhh.de/hrmo

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