Endogeneity in Accounting and Finance Research: Natural Experiments as a State-of-the-Art Solution

Jennifer Gippel, Tom Smith and Yushu Zhu

Abacus, 2015, vol. 51, issue 2, 143-168

Abstract: type="main">

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.

Date: 2015
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