Panel Data Estimation in Finance: Testable Assumptions and Parameter (In)Consistency

Grieser, William; Hadlock, Charles J.

doi:10.2139/ssrn.2759386

Cited by 10 publications

(11 citation statements)

References 34 publications

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“…The results are shown in Columns (1) to (3) of Table 5. 9 We get very consistent results with a first difference specification (see Table A3 in the Appendix), which provides evidence for the strict exogeneity assumption (Grieser and Hadlock, 2016).…”

Section: Cigarette Taxes and Food Stamp Enrollmentsupporting

confidence: 62%

Taxing Consumption and the Take-up of Public Assistance: The Case of Cigarette Taxes and Food Stamps

Rozema¹,

Ziebarth

2017

The Journal of Law and Economics

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We exploit cigarette tax variation across US states from 2001 to 2012 to show how taxing inelastic consumption goods can induce low-income households to enroll in public assistance programs. Using the CEX and a novel CPS household panel of monthly food stamp enrollment, we enrich standard cigarette tax difference-indifferences models with an additional control group: non-smoking households. Smoking households are "treated" with higher taxes while non-smoking households are not. Marginal smoking households respond to increases in cigarette taxes by taking-up food stamps at rates higher than smoking households in other states and non-smoking households in the same state.

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Section: Cigarette Taxes and Food Stamp Enrollmentsupporting

confidence: 62%

Taxing Consumption and the Take-up of Public Assistance: The Case of Cigarette Taxes and Food Stamps

Rozema¹,

Ziebarth

2017

The Journal of Law and Economics

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“…Bhargava and Sargan () suggest that assuming exogeneity is more reasonable if one uses a random effects or fixed effects specification to address unobserved heterogeneity, and the data has a “short” time dimension and a time‐persistent variable of interest. Grieser and Hadlock () provide evidence that this exogeneity assumption may not be satisfied in many corporate finance studies and discuss how one might test this assumption; doing so is beyond the scope of this paper. Both fixed effects and random effects will be inconsistent if there are omitted time‐varying firm covariates that are correlated with both governance indices and Tobin's q .…”

Section: Methodology To Assess Construct Validitymentioning

confidence: 99%

Corporate governance indices and construct validity

Black

Carvalho

Khanna

et al. 2017

Corporate Governance

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Manuscript Type: Conceptual and empirical.Research Question/Issue: Many studies of firm-level corporate governance rely on aggregate "indices" to measure underlying, unobserved governance. But we are not confident that we know how to build these indices. Often we are unsure both as to what is "good" governance, and how one can proxy for this vague concept using observable measures. We conduct an exploratory analysis of how researchers can address the "construct validity" of firm-level governance indices, which poses a major challenge to all studies that rely on these indices.Research Findings/Insights: We assess the construct validity of governance indices for four major emerging markets (Brazil, India, Korea, and Turkey), developed in prior work. In that work, we built country-specific indices, using country-specific governance elements that reflect local norms, institutions, and data availability, and showed that these indices predict firm market value in each country. The use of country-specific indices puts great stress on the construct validity challenge of assessing how well a governance measure matches the underlying concept. We address here how well these four country-specific indices, and subindices for aspects of governance such as board structure or disclosure, coherently measure unobserved, underlying actual governance.Theoretical/Academic Implications: We provide guidance on how researchers can address the construct validity of corporate governance indices.Practitioner/Policy Implications: The uncertain construct validity of most corporate governance indices suggests caution in relying on research using these indices as a basis for firm-level governance changes, or country-level legal reforms.

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“…DeAngelo and Roll (2015) show that interaction terms between firm fixed effects and decade fixed effects have coefficient estimates that are statistically significant. Their finding suggests that the use of first differences offers a superior solution (e.g., Grieser and Hadlock, 2019;Wooldridge, 2010) to the omitted variables problem in this context. 31 The regression specification in Equation ( 16) is estimated using both book and market leverage ratios as the dependent variables.…”

Section: Regression Testsmentioning

confidence: 99%

Ambiguity and the Tradeoff Theory of Capital Structure

2022

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We examine the impact of ambiguity, or Knightian uncertainty, on the capital structure decision, using a static tradeoff theory model in which agents are both ambiguity and risk averse. The model confirms the well-known result that greater risk—the uncertainty over outcomes—leads firms to decrease leverage. Conversely, the model indicates that greater ambiguity—the uncertainty over the probabilities associated with the outcomes—leads firms to increase leverage. Using a theoretically based measure of ambiguity, our empirical analysis presents evidence consistent with these notions, showing that ambiguity has an important and distinct impact on capital structure. This paper was accepted by Gustavo Manso, finance.

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Panel Data Estimation in Finance: Testable Assumptions and Parameter (In)Consistency

Cited by 10 publications

References 34 publications

Taxing Consumption and the Take-up of Public Assistance: The Case of Cigarette Taxes and Food Stamps

Taxing Consumption and the Take-up of Public Assistance: The Case of Cigarette Taxes and Food Stamps

Corporate governance indices and construct validity

Ambiguity and the Tradeoff Theory of Capital Structure

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