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250
Estimating standard errors in finance panel data sets: comparing approaches.
- Review of Financial Studies
, 2009
"... Abstract In both corporate finance and asset pricing empirical work, researchers are often confronted with panel data. In these data sets, the residuals may be correlated across firms and across time, and OLS standard errors can be biased. Historically, the two literatures have used different solut ..."
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Cited by 890 (7 self)
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Abstract In both corporate finance and asset pricing empirical work, researchers are often confronted with panel data. In these data sets, the residuals may be correlated across firms and across time, and OLS standard errors can be biased. Historically, the two literatures have used different solutions to this problem. Corporate finance has relied on clustered standard errors, while asset pricing has used the Fama-MacBeth procedure to estimate standard errors. This paper examines the different methods used in the literature and explains when the different methods yield the same (and correct) standard errors and when they diverge. The intent is to provide intuition as to why the different approaches sometimes give different answers and give researchers guidance for their use.
So What Do I Get? The Bank's View of Lending Relationships
- Journal of Financial Economics
, 2007
"... While the concept of customer lending relationships in banking has generated a great deal of recent attention, one gap in the empirical literature is that linking current lending business and the sale of “other products”. Specifically, does establishing a lending relationship today add value for the ..."
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Cited by 75 (6 self)
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While the concept of customer lending relationships in banking has generated a great deal of recent attention, one gap in the empirical literature is that linking current lending business and the sale of “other products”. Specifically, does establishing a lending relationship today add value for the bank by increasing the probability of attracting future business from the same customer? Indeed, many bankers view the generation of additional business as the principal reason for engaging in relationship lending. Our results show that a lender that has a strong relationship with a borrower has far greater odds of providing it with future loans compared to a lender lacking such a relationship. Existence of lending relationships are also strongly associated with an increased probability of winning future debt underwriting business from the same customer. Prior lending relationships also translate into a higher likelihood of a winning a co-manager role on equity underwritings. While loans to relationship borrowers have a 10-16 basis points lower interest rate, the fees on investment banking services tend to be up to 14 % higher. In sum, we document direct and measurable evidence of the value of relationships to lenders.
Eliciting risk and time preferences
- Econometrica
, 2008
"... Abstract. We design experiments to jointly elicit risk and time preferences for the adult Danish population. We find that joint elicitation results in estimates of discount rates that are dramatically lower than those found in previous studies. Estimation of latent time preferences requires that one ..."
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Cited by 68 (7 self)
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Abstract. We design experiments to jointly elicit risk and time preferences for the adult Danish population. We find that joint elicitation results in estimates of discount rates that are dramatically lower than those found in previous studies. Estimation of latent time preferences requires that one specify a theoretical structure to understand risk and time choices, but we show that our main results, based on exponential discounting and expected utility theory, are robust to popular alternative specifications such as hyperbolic discounting and prospect theoretic formulations of choice under uncertainty. We also report evidence favoring standard, exponential discounting over hyperbolic. These results have direct implications for attempts to elicit time preferences, as well as debates over the appropriate domain of the utility function when characterizing risk aversion and time consistency.
Do Natural Resources Fuel Authoritarianism? A Reappraisal of the Resource Curse” May. Presented at workshop on
- Myths and Realities of Commodity Dependence: Policy Challenges and Opportunities for Latin America and the
, 2009
"... Abstract: Is there a relationship between economic dependence on oil or minerals and authoritarianism? In order to answer this question we develop unique historical datasets that allow us to focus on within-country variance in resource dependence and regime types, test for long-run relationships bet ..."
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Cited by 56 (2 self)
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Abstract: Is there a relationship between economic dependence on oil or minerals and authoritarianism? In order to answer this question we develop unique historical datasets that allow us to focus on within-country variance in resource dependence and regime types, test for long-run relationships between resource reliance and regime type, and estimate dynamic panel models. Our results indicate that dependence on oil and minerals is not associated with the undermining of democracy or less complete transitions to democracy. Our results are at variance with a large body of scholarship that finds a negative relationship between oil or mineral dependence and democracy using pooled, time-series cross-sectional techniques centered on the variation between countries using data substantially truncated with respect to time. We surmise that the reason for this discrepancy is that countries ’ underlying institutions jointly determine their resource
Industrial Linkages and Export Spillovers from FDI
- World Economy
, 2007
"... Abstract: In this paper we investigated the hypothesis of export spillovers from foreign multinationals to domestic firms using a data set of UK manufacturing firms from 1992 to 1999. Unlike previous studies we allow not only for the possibility of horizontal (i.e. intraindustry) and regional extern ..."
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Cited by 49 (3 self)
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Abstract: In this paper we investigated the hypothesis of export spillovers from foreign multinationals to domestic firms using a data set of UK manufacturing firms from 1992 to 1999. Unlike previous studies we allow not only for the possibility of horizontal (i.e. intraindustry) and regional externalities, but also for vertical ones (i.e. inter-industry: forward and backward). Deploying and Heckman selection process we modelled the two decisions of whether to export or not, and how much to export, separately. The results indicate that the decision to start exporting is positively associated with the presence of foreign firms in the same industry and region; furthermore export oriented foreign affiliates seem to be the source of stronger export spillovers. The decision concerning how much to export is affected positively by foreign firms in downstream industries and by those in the same industry and region that do not export. Key Words: FDI, export spillovers, export platforms.
Do local tax incentives affect economic growth? What mean impacts miss in the analysis of enterprise zone policies
, 2007
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Understanding the Recovery Rates on Defaulted Securities. Working paper
, 2003
"... assistance. The authors acknowledge the help of Edward Altman, Brooks Brady, and Standard and Poors for providing data employed in the paper and its documentation. The authors are grateful to the Institute for Quantitative Investment Research (INQUIRE), UK for its financial support for the project. ..."
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Cited by 44 (2 self)
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assistance. The authors acknowledge the help of Edward Altman, Brooks Brady, and Standard and Poors for providing data employed in the paper and its documentation. The authors are grateful to the Institute for Quantitative Investment Research (INQUIRE), UK for its financial support for the project. Acharya is grateful to the Research and Materials Development (RMD) grant from London Business School. Understanding the Recovery Rates on Defaulted Securities We document empirically the determinants of the observed recovery rates on defaulted securities in the United States over the period 1982–1999. The recovery rates are measured using the prices of defaulted securities at the time of default and at the time of emergence from default or from bankruptcy. In addition to seniority and security of the defaulted securities, industry conditions at the time of default are found to be robust and important
Risk Aversion in the Laboratory
- of Research in Experimental Economics. Emerald Group Publishing Limited
, 2008
"... We review the experimental evidence on risk aversion in controlled laboratory settings. We review the strengths and weaknesses of alternative elicitation procedures, the strengths and weaknesses of alternative estimation procedures, and finally the effect of controlling for risk attitudes on inferen ..."
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Cited by 42 (2 self)
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We review the experimental evidence on risk aversion in controlled laboratory settings. We review the strengths and weaknesses of alternative elicitation procedures, the strengths and weaknesses of alternative estimation procedures, and finally the effect of controlling for risk attitudes on inferences in experiments. Attitudes to risk are one of the primitives of economics. Individual preferences over risky prospects are taken as given and subjective in all standard economic theory. Turning to the characterization of risk in applied work, however, one observes many restrictive assumptions being used. In many cases individuals are simply assumed to be risk neutral;1 or perhaps to have the same constant absolute or relative aversion to risk.2 Assumptions buy tractability, of course, but at a cost. How plausible are the restrictive assumptions about risk attitudes that are popularly used? If they are not plausible, perhaps there is some way in which one can characterize the distribution of risk attitudes so that it can be used to analyze the implications of relaxing these assumptions. If so, such characterizations will condition inferences about choice behavior under uncertainty, bidding in auctions, and behavior in games.
Business networks, corporate governance, and contracting in the mutual fund industry.
- Journal of Finance,
, 2009
"... Abstract Do business connections affect hiring, compensation, and performance? This paper presents evidence from the mutual funds industry using a novel panel data set of business connections between fund directors and the advisory firms that manage the funds. I find that fund boards award portfoli ..."
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Cited by 36 (0 self)
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Abstract Do business connections affect hiring, compensation, and performance? This paper presents evidence from the mutual funds industry using a novel panel data set of business connections between fund directors and the advisory firms that manage the funds. I find that fund boards award portfolio management contracts preferentially to advisory firms which have had more business relationships with the funds' directors. A one-standard deviation increase in connections between directors and a candidate advisor increases the odds that the candidate is chosen by 16%. Similarly, when advisory firms create new funds they offer board seats preferentially to directors known from past business relationships. Increasing connections by one standard deviation corresponds to a 28% increase in the odds of a candidate director being nominated. Moreover, advisors receive higher pay when they are more connected to the fund directors. A one standard deviation increase in connections translates into more than $1 billion increase in transfers from mutual fund investors to advisory firms each year. The preferential hiring and pay of connected advisors is not compensated by higher performance. A one standard deviation increase in connections corresponds to a decrease in fund returns (before and after advisory fees) and fund alphas of 1% per year. These findings identify adverse effects of social networks on corporate governance, and support recent initiatives for more disclosure regarding the negotiation of advisory contracts by fund boards.
Estimating the Impact of State Policies and Institutions with Mixed-Level Data.” State Politics and Policy Quarterly
, 2007
"... Researchers often seek to understand the effects of state policies or institutions on individual behavior or other outcomes in sub-state-level observational units (e.g., election results in state legislative districts). However, standard estimation methods applied to such models do not properly acco ..."
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Cited by 35 (0 self)
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Researchers often seek to understand the effects of state policies or institutions on individual behavior or other outcomes in sub-state-level observational units (e.g., election results in state legislative districts). However, standard estimation methods applied to such models do not properly account for the clustering of observations within states and may lead researchers to overstate the statistical significance of state-level factors. We discuss the theory behind two approaches to dealing with clustering—clustered standard errors and multilevel modeling. We then demonstrate the relevance of this topic by replicating a recent study of the effects of state post-registration laws on voter turnout (Wolfinger, Highton, and Mullin 2005). While we view clustered standard errors as a more straightforward, feasible approach, especially when working with large datasets or many cross-level interactions, our purpose in this Practical Researcher piece is to draw attention to the issue of clustering in state and local politics research. 1 Researchers are often concerned with estimating the effects of state-level policies or institutions on individual or other sub-state-level outcomes.1 Such empirical analyses may be
