Panel Models with Two Threshold Variables: The Case of Financial Constraints

Arturo Lamadrid-Contreras and Nelson R. Ramírez-Rondán
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Arturo Lamadrid-Contreras: Citibanamex

No 128, Working Papers from Peruvian Economic Association

Abstract: We develop threshold estimation methods for panel data models with two threshold variables and individual fixed specific effects covering short time periods. In the static panel data model, we propose least squares estimation of the threshold and regression slopes using fixed effects transformations; while in the dynamic panel data model, we propose maximum likelihood estimation of the threshold and slope parameters using first difference transformations. In both models, we propose to estimate the threshold parameters sequentially. We apply the methods to a 15-year sample of 565 U.S. firms to test whether financial constraints affect investment decisions.

Keywords: Threshold model; panel data; capital market imperfections (search for similar items in EconPapers)
JEL-codes: C13 C23 G11 (search for similar items in EconPapers)
Date: 2018-10
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