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

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  • Jennifer Gippel
  • Tom Smith
  • Yushu Zhu

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.

Suggested Citation

  • Jennifer Gippel & Tom Smith & Yushu Zhu, 2015. "Endogeneity in Accounting and Finance Research: Natural Experiments as a State-of-the-Art Solution," Abacus, Accounting Foundation, University of Sydney, vol. 51(2), pages 143-168, June.
    • Handle: RePEc:bla:abacus:v:51:y:2015:i:2:p:143-168
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