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Endogeneity in Empirical Corporate Finance1

In: Handbook of the Economics of Finance

Author

Listed:
  • Roberts, Michael R.
  • Whited, Toni M.

Abstract

This chapter discusses how applied researchers in corporate finance can address endogeneity concerns. We begin by reviewing the sources of endogeneity—omitted variables, simultaneity, and measurement error—and their implications for inference. We then discuss in detail a number of econometric techniques aimed at addressing endogeneity problems, including instrumental variables, difference-in-differences estimators, regression discontinuity design, matching methods, panel data methods, and higher order moments estimators. The unifying themes of our discussion are the emphasis on intuition and the applications to corporate finance.

Suggested Citation

  • Roberts, Michael R. & Whited, Toni M., 2013. "Endogeneity in Empirical Corporate Finance1," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 493-572, Elsevier.
    • Handle: RePEc:eee:finchp:2-a-493-572
    DOI: 10.1016/B978-0-44-453594-8.00007-0
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    More about this item

    Keywords

    Instrumental Variables; Difference-in-Differences Estimators; Regression Discontinuity Designs; Matching Estimators; Measurement Error; G3; C21; C23; C26;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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