On solving endogeneity with invalid instruments: an application to investment equations

Autores
Galvao, Antonio F.; Montes Rojas, Gabriel Victorio; Olmo, Jose; Song, Suyong
Año de publicación
2018
Idioma
inglés
Tipo de recurso
artículo
Estado
versión publicada
Descripción
Regression models relating investment demand with firms’ Tobin's q and cash flow are fraught with measurement errors which, in turn, cause endogeneity bias. We propose an alternative solution to this problem based on modelling the interaction between the endogenous Tobin's q and the error term in the investment equation as a function of lagged values of Tobin's q. We then study the identification conditions and asymptotic properties of the resulting estimator. Our analysis of a panel of US firms reveals a larger effect of Tobin's q on firms’ investment demand than that obtained by using available estimators in the literature. Moreover, the estimates highlight the importance of cash flow. We find mixed evidence on the relationship between investment demand and firms’ cash flow with respect to different measures of financial constraints. Nevertheless, this evidence is more supportive of the view that firms’ cash flows have a weaker correlation to investment demand when financial conditions tighten.
Fil: Galvao, Antonio F.. University of Arizona; Estados Unidos
Fil: Montes Rojas, Gabriel Victorio. Consejo Nacional de Investigaciones Científicas y Técnicas. Oficina de Coordinación Administrativa Saavedra 15. Instituto Interdisciplinario de Economía Política de Buenos Aires. Universidad de Buenos Aires. Facultad de Ciencias Económicas. Instituto Interdisciplinario de Economía Política de Buenos Aires; Argentina
Fil: Olmo, Jose. University of Southampton; Reino Unido
Fil: Song, Suyong. University of Iowa; Estados Unidos
Materia
CASH FLOW
ENDOGENEITY
INVESTMENT EQUATION
MEASUREMENT ERRORS
TOBIN'S Q
Nivel de accesibilidad
acceso abierto
Condiciones de uso
https://creativecommons.org/licenses/by-nc-sa/2.5/ar/
Repositorio
CONICET Digital (CONICET)
Institución
Consejo Nacional de Investigaciones Científicas y Técnicas
OAI Identificador
oai:ri.conicet.gov.ar:11336/87222
Acceder
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network_name_str CONICET Digital (CONICET)
spelling On solving endogeneity with invalid instruments: an application to investment equationsGalvao, Antonio F.Montes Rojas, Gabriel VictorioOlmo, JoseSong, SuyongCASH FLOWENDOGENEITYINVESTMENT EQUATIONMEASUREMENT ERRORSTOBIN'S Qhttps://purl.org/becyt/ford/5.2https://purl.org/becyt/ford/5Regression models relating investment demand with firms’ Tobin's q and cash flow are fraught with measurement errors which, in turn, cause endogeneity bias. We propose an alternative solution to this problem based on modelling the interaction between the endogenous Tobin's q and the error term in the investment equation as a function of lagged values of Tobin's q. We then study the identification conditions and asymptotic properties of the resulting estimator. Our analysis of a panel of US firms reveals a larger effect of Tobin's q on firms’ investment demand than that obtained by using available estimators in the literature. Moreover, the estimates highlight the importance of cash flow. We find mixed evidence on the relationship between investment demand and firms’ cash flow with respect to different measures of financial constraints. Nevertheless, this evidence is more supportive of the view that firms’ cash flows have a weaker correlation to investment demand when financial conditions tighten.Fil: Galvao, Antonio F.. University of Arizona; Estados UnidosFil: Montes Rojas, Gabriel Victorio. Consejo Nacional de Investigaciones Científicas y Técnicas. Oficina de Coordinación Administrativa Saavedra 15. Instituto Interdisciplinario de Economía Política de Buenos Aires. Universidad de Buenos Aires. Facultad de Ciencias Económicas. Instituto Interdisciplinario de Economía Política de Buenos Aires; ArgentinaFil: Olmo, Jose. University of Southampton; Reino UnidoFil: Song, Suyong. University of Iowa; Estados UnidosWiley Blackwell Publishing, Inc2018-06info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersionhttp://purl.org/coar/resource_type/c_6501info:ar-repo/semantics/articuloapplication/pdfapplication/pdfhttp://hdl.handle.net/11336/87222Galvao, Antonio F.; Montes Rojas, Gabriel Victorio; Olmo, Jose; Song, Suyong; On solving endogeneity with invalid instruments: an application to investment equations; Wiley Blackwell Publishing, Inc; Journal Of The Royal Statistical Society Series A-statistics In Society; 181; 3; 6-2018; 689-7160964-19981467-985XCONICET DigitalCONICETenginfo:eu-repo/semantics/altIdentifier/url/https://rss.onlinelibrary.wiley.com/doi/10.1111/rssa.12313info:eu-repo/semantics/altIdentifier/doi/10.1111/rssa.12313info:eu-repo/semantics/openAccesshttps://creativecommons.org/licenses/by-nc-sa/2.5/ar/reponame:CONICET Digital (CONICET)instname:Consejo Nacional de Investigaciones Científicas y Técnicas2025-09-29T09:46:31Zoai:ri.conicet.gov.ar:11336/87222instacron:CONICETInstitucionalhttp://ri.conicet.gov.ar/Organismo científico-tecnológicoNo correspondehttp://ri.conicet.gov.ar/oai/requestdasensio@conicet.gov.ar; lcarlino@conicet.gov.arArgentinaNo correspondeNo correspondeNo correspondeopendoar:34982025-09-29 09:46:31.822CONICET Digital (CONICET) - Consejo Nacional de Investigaciones Científicas y Técnicasfalse
dc.title.none.fl_str_mv On solving endogeneity with invalid instruments: an application to investment equations
title On solving endogeneity with invalid instruments: an application to investment equations
spellingShingle On solving endogeneity with invalid instruments: an application to investment equations
Galvao, Antonio F.
CASH FLOW
ENDOGENEITY
INVESTMENT EQUATION
MEASUREMENT ERRORS
TOBIN'S Q
title_short On solving endogeneity with invalid instruments: an application to investment equations
title_full On solving endogeneity with invalid instruments: an application to investment equations
title_fullStr On solving endogeneity with invalid instruments: an application to investment equations
title_full_unstemmed On solving endogeneity with invalid instruments: an application to investment equations
title_sort On solving endogeneity with invalid instruments: an application to investment equations
dc.creator.none.fl_str_mv Galvao, Antonio F.
Montes Rojas, Gabriel Victorio
Olmo, Jose
Song, Suyong
author Galvao, Antonio F.
author_facet Galvao, Antonio F.
Montes Rojas, Gabriel Victorio
Olmo, Jose
Song, Suyong
author_role author
author2 Montes Rojas, Gabriel Victorio
Olmo, Jose
Song, Suyong
author2_role author
author
author
dc.subject.none.fl_str_mv CASH FLOW
ENDOGENEITY
INVESTMENT EQUATION
MEASUREMENT ERRORS
TOBIN'S Q
topic CASH FLOW
ENDOGENEITY
INVESTMENT EQUATION
MEASUREMENT ERRORS
TOBIN'S Q
purl_subject.fl_str_mv https://purl.org/becyt/ford/5.2
https://purl.org/becyt/ford/5
dc.description.none.fl_txt_mv Regression models relating investment demand with firms’ Tobin's q and cash flow are fraught with measurement errors which, in turn, cause endogeneity bias. We propose an alternative solution to this problem based on modelling the interaction between the endogenous Tobin's q and the error term in the investment equation as a function of lagged values of Tobin's q. We then study the identification conditions and asymptotic properties of the resulting estimator. Our analysis of a panel of US firms reveals a larger effect of Tobin's q on firms’ investment demand than that obtained by using available estimators in the literature. Moreover, the estimates highlight the importance of cash flow. We find mixed evidence on the relationship between investment demand and firms’ cash flow with respect to different measures of financial constraints. Nevertheless, this evidence is more supportive of the view that firms’ cash flows have a weaker correlation to investment demand when financial conditions tighten.
Fil: Galvao, Antonio F.. University of Arizona; Estados Unidos
Fil: Montes Rojas, Gabriel Victorio. Consejo Nacional de Investigaciones Científicas y Técnicas. Oficina de Coordinación Administrativa Saavedra 15. Instituto Interdisciplinario de Economía Política de Buenos Aires. Universidad de Buenos Aires. Facultad de Ciencias Económicas. Instituto Interdisciplinario de Economía Política de Buenos Aires; Argentina
Fil: Olmo, Jose. University of Southampton; Reino Unido
Fil: Song, Suyong. University of Iowa; Estados Unidos
description Regression models relating investment demand with firms’ Tobin's q and cash flow are fraught with measurement errors which, in turn, cause endogeneity bias. We propose an alternative solution to this problem based on modelling the interaction between the endogenous Tobin's q and the error term in the investment equation as a function of lagged values of Tobin's q. We then study the identification conditions and asymptotic properties of the resulting estimator. Our analysis of a panel of US firms reveals a larger effect of Tobin's q on firms’ investment demand than that obtained by using available estimators in the literature. Moreover, the estimates highlight the importance of cash flow. We find mixed evidence on the relationship between investment demand and firms’ cash flow with respect to different measures of financial constraints. Nevertheless, this evidence is more supportive of the view that firms’ cash flows have a weaker correlation to investment demand when financial conditions tighten.
publishDate 2018
dc.date.none.fl_str_mv 2018-06
dc.type.none.fl_str_mv info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
http://purl.org/coar/resource_type/c_6501
info:ar-repo/semantics/articulo
format article
status_str publishedVersion
dc.identifier.none.fl_str_mv http://hdl.handle.net/11336/87222
Galvao, Antonio F.; Montes Rojas, Gabriel Victorio; Olmo, Jose; Song, Suyong; On solving endogeneity with invalid instruments: an application to investment equations; Wiley Blackwell Publishing, Inc; Journal Of The Royal Statistical Society Series A-statistics In Society; 181; 3; 6-2018; 689-716
0964-1998
1467-985X
CONICET Digital
CONICET
url http://hdl.handle.net/11336/87222
identifier_str_mv Galvao, Antonio F.; Montes Rojas, Gabriel Victorio; Olmo, Jose; Song, Suyong; On solving endogeneity with invalid instruments: an application to investment equations; Wiley Blackwell Publishing, Inc; Journal Of The Royal Statistical Society Series A-statistics In Society; 181; 3; 6-2018; 689-716
0964-1998
1467-985X
CONICET Digital
CONICET
dc.language.none.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv info:eu-repo/semantics/altIdentifier/url/https://rss.onlinelibrary.wiley.com/doi/10.1111/rssa.12313
info:eu-repo/semantics/altIdentifier/doi/10.1111/rssa.12313
dc.rights.none.fl_str_mv info:eu-repo/semantics/openAccess
https://creativecommons.org/licenses/by-nc-sa/2.5/ar/
eu_rights_str_mv openAccess
rights_invalid_str_mv https://creativecommons.org/licenses/by-nc-sa/2.5/ar/
dc.format.none.fl_str_mv application/pdf
application/pdf
dc.publisher.none.fl_str_mv Wiley Blackwell Publishing, Inc
publisher.none.fl_str_mv Wiley Blackwell Publishing, Inc
dc.source.none.fl_str_mv reponame:CONICET Digital (CONICET)
instname:Consejo Nacional de Investigaciones Científicas y Técnicas
reponame_str CONICET Digital (CONICET)
collection CONICET Digital (CONICET)
instname_str Consejo Nacional de Investigaciones Científicas y Técnicas
repository.name.fl_str_mv CONICET Digital (CONICET) - Consejo Nacional de Investigaciones Científicas y Técnicas
repository.mail.fl_str_mv dasensio@conicet.gov.ar; lcarlino@conicet.gov.ar
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score 13.070432

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