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Endogeneity: how failure to correct for it can cause wrong inferences and some remedies

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journal contribution
posted on 14.05.2015, 08:38 by Wissam Abdallah, Marc Goergen, Noel O'SullivanNoel O'Sullivan
Although researchers in business and management are becoming increasingly aware of the importance of endogeneity affecting regression analysis, they frequently do not have the right methodological toolkit to adjust for this issue. This paper discusses such a toolkit. There are also areas in business and management research which to date seem to be mostly oblivious about the endogeneity issue. This paper highlights such an area, which studies the question as to whether firms that are cross-listed on a foreign stock exchange are charged premium fees by their auditors. When the same methodology (pooled ordinary least squares) as in the existing literature is used, the existence of an audit fee premium for cross-listed firms seems to be confirmed. However, once methodologies are used which adjust for the various types of endogeneity (i.e. omitted variable bias, simultaneous and dynamic endogeneity) there is no longer support for the existence of such a generalised premium. Hence, this paper not only illustrates that failure to adjust for endogeneity has severe consequences such as drawing the wrong inferences, but it also reviews various ways to control for the different types of endogeneity.

History

School

  • Business and Economics

Department

  • Business

Published in

British Journal of Management

Volume

26

Issue

4

Pages

791 - 804

Citation

ABDALLAH, W., GOERGEN, M. and O'SULLIVAN, N., 2015. Endogeneity: how failure to correct for it can cause wrong inferences and some remedies. British Journal of Management, 26(4), pp.791-804.

Publisher

Wiley

Version

AM (Accepted Manuscript)

Rights holder

© British Academy of Management

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Publication date

2015-07-16

Notes

This is the peer reviewed version of the following article: ABDALLAH, W., GOERGEN, M. and O'SULLIVAN, N., 2015. Endogeneity: how failure to correct for it can cause wrong inferences and some remedies. British Journal of Management, 26(4), pp.791-804, which has been published in final form at http://dx.doi.org/10.1111/1467-8551.12113. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

ISSN

1045-3172

eISSN

1467-8551

Language

en

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