Estimating dynamic panel models in corporate finance

Mark J. Flannery, Kristine Watson Hankins

Research output: Contribution to journalArticlepeer-review

446 Scopus citations

Abstract

Dynamic panel models play a natural role in several important areas of corporate finance, but the combination of fixed effects and lagged dependent variables introduces serious econometric bias. Several methods of counteracting these biases are available and these methodologies have been tested on small datasets with independent, normally-distributed explanatory variables. However, no one has evaluated the methods' performance with corporate finance data, in which the dependent variable may be clustered or censored and independent variables may be missing, correlated with one another, or endogenous. We find that the data's properties substantially affect the estimators' performances. We provide evidence about the impact of various data set characteristics on the estimators, so that researchers can determine the best approach for their datasets.

Original languageEnglish
Pages (from-to)1-19
Number of pages19
JournalJournal of Corporate Finance
Volume19
Issue number1
DOIs
StatePublished - Feb 2013

Keywords

  • Corporate finance
  • Dynamic panels
  • Econometrics

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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