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Endogeneity and Empirical Accounting Research

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  • David F. Larcker
  • Tjomme O. Rusticus
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    Abstract

    The discussion reinforces and expands on some of the fundamental issues about endogeneity raised by Chenhall and Moers (European Accounting Review, this issue, pp. 173-195). We focus on the econometric problems researchers encounter when investigating the performance effects of some endogenous firm choice. Our points are illustrated using the classic research question about the relation between managerial equity ownership and firm value. We consider cases where ownership is treated as an exogenous, endogenous and 'partially' endogenous variable. We argue treating ownership as an exogenous variable is seriously flawed. Unfortunately, when ownership is at least partially endogenous, it is necessary for empirical researchers to identify exogenous variables that are the determinants of the ownership choice. This calls for better theory to guide the empirical work.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/09638180701269905
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal European Accounting Review.

    Volume (Year): 16 (2007)
    Issue (Month): 1 ()
    Pages: 207-215

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    Handle: RePEc:taf:euract:v:16:y:2007:i:1:p:207-215

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    Cited by:
    1. Butler, Maureen G. & Callahan, Carolyn M., 2014. "Human resource outsourcing: Market and operating performance effects of administrative HR functions," Journal of Business Research, Elsevier, vol. 67(2), pages 218-224.
    2. Michael Firth & Sonia Wong & Yong Yang, 2014. "The double-edged sword of CEO/chairperson duality in corporatized state-owned firms: evidence from top management turnover in China," Journal of Management and Governance, Springer, vol. 18(1), pages 207-244, February.

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