Advanced Search
MyIDEAS: Login to save this article or follow this journal

Treating Measurement Error in Tobin's q

Contents:

Author Info

  • Timothy Erickson
  • Toni M. Whited

Abstract

We compare the ability of three measurement error remedies to deliver unbiased estimates of coefficients in investment regressions. We examine high-order moment estimators, dynamic panel estimators, and simple instrumental variables estimators that use lagged mismeasured regressors as instruments. We show that recent investigations of this question are largely uninformative. We find that all estimators can perform well under correct specification, all can be biased under misspecification, and misspecification is easiest to detect in the case of high-order moment estimators. We develop and demonstrate a minimum distance technique that extends the high-order moment estimators to be used on unbalanced panel data. Published by Oxford University Press 2011., Oxford University Press.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1093/rfs/hhr120
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 25 (2012)
Issue (Month): 4 ()
Pages: 1286-1329

as in new window
Handle: RePEc:oup:rfinst:v:25:y:2012:i:4:p:1286-1329

Contact details of provider:
Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Fax: 919-677-1714
Email:
Web page: http://www.rfs.oupjournals.org/
More information through EDIRC

Order Information:
Web: http://www4.oup.co.uk/revfin/subinfo/

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Heitor Almeida & Murillo Campello, 2007. "Financial Constraints, Asset Tangibility, and Corporate Investment," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 20(5), pages 1429-1460, 2007 12.
  2. Joshua D. Rauh, 2006. "Investment and Financing Constraints: Evidence from the Funding of Corporate Pension Plans," Journal of Finance, American Finance Association, American Finance Association, vol. 61(1), pages 33-71, 02.
  3. Michael L. Lemmon & Michael R. Roberts & Jaime F. Zender, 2008. "Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure," Journal of Finance, American Finance Association, American Finance Association, vol. 63(4), pages 1575-1608, 08.
  4. Chen, Huafeng (Jason) & Chen, Shaojun (Jenny), 2012. "Investment-cash flow sensitivity cannot be a good measure of financial constraints: Evidence from the time series," Journal of Financial Economics, Elsevier, Elsevier, vol. 103(2), pages 393-410.
  5. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers, Institute for Fiscal Studies W95/17, Institute for Fiscal Studies.
  6. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  7. Heitor Almeida & Murillo Campello & Antonio F. Galvao Jr., 2010. "Measurement Errors in Investment Equations," NBER Working Papers 15951, National Bureau of Economic Research, Inc.
  8. Leigh A. Riddick & Toni M. Whited, 2009. "The Corporate Propensity to Save," Journal of Finance, American Finance Association, American Finance Association, vol. 64(4), pages 1729-1766, 08.
  9. Joao F. Gomes, 2001. "Financing Investment," American Economic Review, American Economic Association, vol. 91(5), pages 1263-1285, December.
  10. Christopher A. Hennessy & Toni M. Whited, 2007. "How Costly Is External Financing? Evidence from a Structural Estimation," Journal of Finance, American Finance Association, American Finance Association, vol. 62(4), pages 1705-1745, 08.
  11. Panousi, Vasia & Papanikolaou, Dimitris, 2009. "Investment, idiosyncratic risk, and ownership," MPRA Paper 24239, University Library of Munich, Germany.
  12. Christopher A. Hennessy, 2004. "Tobin's "Q", Debt Overhang, and Investment," Journal of Finance, American Finance Association, American Finance Association, vol. 59(4), pages 1717-1742, 08.
  13. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  14. Tor-Erik Bakke & Toni M. Whited, 2010. "Which Firms Follow the Market? An Analysis of Corporate Investment Decisions," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 23(5), pages 1941-1980.
  15. Susanne M. Schennach, 2004. "Estimation of Nonlinear Models with Measurement Error," Econometrica, Econometric Society, Econometric Society, vol. 72(1), pages 33-75, 01.
  16. Nathalie Moyen, 2004. "Investment-Cash Flow Sensitivities: Constrained versus Unconstrained Firms," Journal of Finance, American Finance Association, American Finance Association, vol. 59(5), pages 2061-2092, October.
  17. Jay Shanken & Guofu Zhou, 2007. "Estimating and testing beta pricing models: Alternative methods and their performance in simulations," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 275, China Economics and Management Academy, Central University of Finance and Economics.
  18. Timothy Erickson & Toni M. Whited, 2000. "Measurement Error and the Relationship between Investment and q," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(5), pages 1027-1057, October.
  19. Erickson, Timothy & Whited, Toni M., 2005. "Proxy-quality thresholds: Theory and applications," Finance Research Letters, Elsevier, Elsevier, vol. 2(3), pages 131-151, September.
  20. Hansen, Lars Peter & Heaton, John & Yaron, Amir, 1996. "Finite-Sample Properties of Some Alternative GMM Estimators," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 14(3), pages 262-80, July.
  21. Hall, Peter & Horowitz, Joel L, 1996. "Bootstrap Critical Values for Tests Based on Generalized-Method-of-Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 891-916, July.
  22. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, December.
  23. Kocherlakota, Narayana R., 1990. "On tests of representative consumer asset pricing models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 26(2), pages 285-304, October.
  24. Sudheer Chava & Michael R. Roberts, 2008. "How Does Financing Impact Investment? The Role of Debt Covenants," Journal of Finance, American Finance Association, American Finance Association, vol. 63(5), pages 2085-2121, October.
  25. Toni M. Whited, 2001. "Is It Inefficient Investment that Causes the Diversification Discount?," Journal of Finance, American Finance Association, American Finance Association, vol. 56(5), pages 1667-1691, October.
  26. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 56(6), pages 1371-95, November.
  27. Holtz-Eakin, Douglas, 1988. "Testing for individual effects in autoregressive models," Journal of Econometrics, Elsevier, Elsevier, vol. 39(3), pages 297-307, November.
  28. Heitor Almeida & Murillo Campello & Antonio F. Galvao, 2010. "Measurement Errors in Investment Equations," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 23(9), pages 3279-3328.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Becker, Bo & Jacob, Marcus & Jacob, Martin, 2013. "Payout taxes and the allocation of investment," Journal of Financial Economics, Elsevier, Elsevier, vol. 107(1), pages 1-24.
  2. Toni Whited & Missaka Warusawitharana, 2014. "Equity market misvaluation, financing, and investment," 2014 Meeting Papers, Society for Economic Dynamics 95, Society for Economic Dynamics.
  3. Badertscher, Brad & Shroff, Nemit & White, Hal D., 2013. "Externalities of public firm presence: Evidence from private firms' investment decisions," Journal of Financial Economics, Elsevier, Elsevier, vol. 109(3), pages 682-706.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:25:y:2012:i:4:p:1286-1329. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.