TY - JOUR
T1 - Endogeneity and empirical accounting research
AU - Larcker, David F.
AU - Rusticus, Tjomme O.
PY - 2007
Y1 - 2007
N2 - The discussion reinforces and expands on some of the fundamental issues about endogeneity raised by Chenhall and Moers (European Accounting Review, this issue, pp. 173-195). We focus on the econometric problems researchers encounter when investigating the performance effects of some endogenous firm choice. Our points are illustrated using the classic research question about the relation between managerial equity ownership and firm value. We consider cases where ownership is treated as an exogenous, endogenous and 'partially' endogenous variable. We argue treating ownership as an exogenous variable is seriously flawed. Unfortunately, when ownership is at least partially endogenous, it is necessary for empirical researchers to identify exogenous variables that are the determinants of the ownership choice. This calls for better theory to guide the empirical work.
AB - The discussion reinforces and expands on some of the fundamental issues about endogeneity raised by Chenhall and Moers (European Accounting Review, this issue, pp. 173-195). We focus on the econometric problems researchers encounter when investigating the performance effects of some endogenous firm choice. Our points are illustrated using the classic research question about the relation between managerial equity ownership and firm value. We consider cases where ownership is treated as an exogenous, endogenous and 'partially' endogenous variable. We argue treating ownership as an exogenous variable is seriously flawed. Unfortunately, when ownership is at least partially endogenous, it is necessary for empirical researchers to identify exogenous variables that are the determinants of the ownership choice. This calls for better theory to guide the empirical work.
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U2 - 10.1080/09638180701269905
DO - 10.1080/09638180701269905
M3 - Article
AN - SCOPUS:34547531609
SN - 0963-8180
VL - 16
SP - 207
EP - 215
JO - European Accounting Review
JF - European Accounting Review
IS - 1
ER -