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Revista Brasileira de Gestão de Negócios

Print version ISSN 1806-4892On-line version ISSN 1983-0807

Abstract

BARROS, Lucas A. B. C.; BERGMANN, Daniel Reed; CASTRO, F. Henrique  and  SILVEIRA, Alexandre Di Miceli da. Endogeneity in panel data regressions: methodological guidance for corporate finance researchers. Rev. bras. gest. neg. [online]. 2020, vol.22, n.spe, pp.437-461.  Epub July 10, 2020. ISSN 1983-0807.  https://doi.org/10.7819/rbgn.v22i0.4059.

Purpose:

To describe the use of specific lags (and/or temporal differences) of the original regressors as instrumental variables in a succinct and practical way, showing, by means of a theoretical discussion illustrated by an original simulation exercise, how combining these with adequate modeling of firm and time fixed effects can address not only the dynamic endogeneity problem, but also those derived from the presence of omitted variables, measurement errors, and simultaneity between dependent and independent variables.

Design/methodology/approach:

Monte Carlo simulation

Findings:

The traditional OLS, RE, and FE estimators may be inconsistent in the presence of endogeneity problems that are quite plausible in the context of corporate finance. On the other hand, the estimation methods for panel data based on GMM that use assumptions of sequential exogeneity of the regressors present alternatives that are capable of effectively overcoming all the problems listed (provided these assumptions are valid) even if the researcher does not have good instrumental variables that are external to the model

Originality/value:

The paper discusses and illustrates a greater number of endogeneity problems, showing how they are addressed by different estimators for panel data, using less technical and more accessible language for researchers not yet initiated in the intricacies of estimating dynamic models for panel data.

Keywords : Corporate Finance; Econometrics; Panel Data; GMM.

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