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In search of robust methods for dynamic panel data models in empirical corporate finance

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  • Dang, Viet Anh
  • Kim, Minjoo
  • Shin, Yongcheol

Abstract

We examine which methods are appropriate for estimating dynamic panel data models in empirical corporate finance. Our simulations show that the instrumental variable and GMM estimators are unreliable, and sensitive to the presence of unobserved heterogeneity, residual serial correlation, and changes in control parameters. The bias-corrected fixed-effects estimators, based on an analytical, bootstrap, or indirect inference approach, are found to be the most appropriate and robust methods. These estimators perform reasonably well even in models with fractional dependent variables censored at [0,1]. We verify these results in two empirical applications, on dynamic capital structure and cash holdings.

Suggested Citation

  • Dang, Viet Anh & Kim, Minjoo & Shin, Yongcheol, 2015. "In search of robust methods for dynamic panel data models in empirical corporate finance," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 84-98.
  • Handle: RePEc:eee:jbfina:v:53:y:2015:i:c:p:84-98
    DOI: 10.1016/j.jbankfin.2014.12.009
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    Cited by:

    1. Marco Botta & Luca Colombo, 2016. "Macroeconomic and Institutional Determinants of Capital Structure Decisions," DISCE - Working Papers del Dipartimento di Economia e Finanza def038, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Bischoff, Oliver & Buchwald, Achim, 2016. "Horizontal and Vertical Firm Networks, Corporate Performance and Product Market Competition," Annual Conference 2016 (Augsburg): Demographic Change 145730, Verein für Socialpolitik / German Economic Association.
    3. Muravyev, Alexander, 2017. "Boards of directors in Russian publicly traded companies in 1998–2014: Structure, dynamics and performance effects," Economic Systems, Elsevier, vol. 41(1), pages 5-25.
    4. repec:eee:finana:v:51:y:2017:i:c:p:54-68 is not listed on IDEAS
    5. Bischoff, Oliver & Buchwald, Achim, 2015. "Horizontal and Vertical Firm Networks, Corporate Performance and Product Market Competition," MPRA Paper 63413, University Library of Munich, Germany.
    6. repec:eee:jbfina:v:89:y:2018:i:c:p:94-104 is not listed on IDEAS
    7. repec:kap:jincot:v:18:y:2018:i:1:d:10.1007_s10842-017-0250-7 is not listed on IDEAS

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    Keywords

    Dynamic panel data estimation; GMM; Bias correction; Capital structure; Cash holdings;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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