Endogeneity in Accounting and Finance Research: Natural Experiments as a State‐of‐the‐Art Solution |
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| Authors: | Jennifer Gippel Tom Smith Yushu Zhu |
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| Affiliation: | 1. Australian National University;2. University of Sydney Business School;3. Macquarie University;4. University of Queensland Business School |
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| Abstract: | This paper provides a discussion of endogeneity as it relates to finance and accounting research. We discuss the textbook solutions: two‐stage least squares, instrumental variables, differenced generalized method of moments (GMM) and system GMM and provide a unifying framework showing how they are related. We consider the limitations of these techniques and then detail a state‐of‐the‐art solution, utilizing a natural experiment as a way of mitigating endogeneity and building stronger theory. |
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| Keywords: | Corporate governance Endogeneity Natural or quasi experiment |
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