Nonlinear Models in Corporate Finance Research: Review,Critique, and Extensions |
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| Authors: | Chen Sheng-Syan Ho Kim Wai Lee Cheng-Few Shrestha Keshab |
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| Institution: | (1) Department of Finance, College of Management, Yuan Ze University, 135 Yuan-Tung Road, Chung-Li, Taoyuan, Taiwan, Tel.:;(2) Division of Banking and Finance, Nanyang Business School, Nanyang Technological University, Nanyang Avenue, Singapore, 639798, Tel.:;(3) Department of Finance and Economics, School of Business, Rutgers University, Piscataway, New Jersey, 08854-8054, USA;(4) Graduate Institute of Finance, National Chiao Tung University, Taiwan, Tel.: |
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| Abstract: | Since the work of Morck, Shleifer and Vishny (1988), nonlinear model specification has gained more attention in corporate finance research. In this paper, we provide a detailed review of the previous studies that have examined nonlinear relations in corporate finance. We review the theory and evidence in these studies and discuss the advantages and disadvantages of the various methodologies used to detect nonlinearity. We also suggest two possible methodological extensions, which we apply in the empirical analysis of R&D investment and firm value. |
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| Keywords: | nonlinear models residual analysis nonlinearity with interaction effect |
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