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| Author: | Nikolaev, V. Lent, L. van |
| Title: | The endogeneity bias in the relation between cost-of-debt capital and corporate disclosure policy |
| Journal: | European Accounting Review
2005 : VOL. 14:4, p. 677-724 |
| Index terms: | Accounting research Capital costs Disclosure Endogenous variables |
| Language: | eng |
| Abstract: | This paper discusses the endogeneity in empirical research. It focuses on the problems arising when endogeneity is caused by unobservable firm-specific factors, and omitted variables. The merits and drawbacks of using panel data techniques is analysed. Secondly, the magnitude of endogeneity bias in Ordinary Least Squares (OLS) regressions of cost-debt capital on firm disclosure is examined. The findings indicate that the effect of disclosure policy on cost-debt capital is 200% higher than what is found in OLS estimation. It is found that disclosure is impacted by unobservable firm-specific factors that are also correlated with cost of capital. |
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