Handbook of Corporate Finance Empirical Corporate Finance Volume 1

34 S.P. Kothari and J.B. Warner Daniel, K., Hirshleifer, D., Teoh, S., 2002. Investor psychology in capital markets: Evidence an ...

Ch. 1: Econometrics of Event Studies 35 Jensen, M., Ruback, R., 1983. The market for corporate control—The scientific evidence. ...

36 S.P. Kothari and J.B. Warner Schwert, G.W., 2001. Anomalies and market efficiency. In: Constantinides, G., Harris, M., Stulz, ...

Chapter 2 SELF-SELECTION MODELS IN CORPORATE FINANCE* KAI LI Sauder School of Business, University of British Columbia, 2053 Mai ...

38 K. Li and N.R. Prabhala Matching models and self-selection 51 4.1. Treatment effects 52 4.2. Treatment effects from selectio ...

Ch. 2: Self-Selection Models in Corporate Finance 39 Abstract Corporate finance decisions are not made at random, but are usuall ...

40 K. Li and N.R. Prabhala Introduction Corporate finance concerns the financing and investment choices made by firms and a broa ...

Ch. 2: Self-Selection Models in Corporate Finance 41 we focus on applications published in the last decade or so, and on article ...

42 K. Li and N.R. Prabhala methods are often motivated by the fact that they yield easily interpretabletreatment effects, select ...

Ch. 2: Self-Selection Models in Corporate Finance 43 using sub-samples of firms that self-select into choiceE. To estimate popul ...

44 K. Li and N.R. Prabhala Yi|E=Xiβ+(i|Ziγ+ηi> 0 ) (6) =Xiβ+π(ηi|Ziγ+ηi> 0 )+νi. (7) Equation(7)follows from the standard ...

Ch. 2: Self-Selection Models in Corporate Finance 45 underlying a firm’s choice and testing its significance is a test of whethe ...

46 K. Li and N.R. Prabhala would be collinear.^7 However, under the assumption of bivariate normal errors,λC(.) is a non-linear ...

Ch. 2: Self-Selection Models in Corporate Finance 47 2.3.2. Bivariate normality A second specification issue is that the baselin ...

48 K. Li and N.R. Prabhala by two regressions. The complete model is as follows: C=E≡Ziγ+ηi> 0 , (11) C=NE≡Ziγ+ηi 0 , (12) Y ...

Ch. 2: Self-Selection Models in Corporate Finance 49 firmichosenNE, the unobserved counterfactual, and what the gain is from fir ...

50 K. Li and N.R. Prabhala YNE,iYE,i, we observe{NE,YNE,i}. The full model is C=E≡YE,i>YNE,i, (16) C=NE≡YE,iYNE,i, (17) YE, ...

Ch. 2: Self-Selection Models in Corporate Finance 51 those studying unionism and the returns to education (seeMaddala, 1983, Cha ...

52 K. Li and N.R. Prabhala 4.1. Treatment effects Matching models focus on estimatingtreatment effects. A treatment effect, loos ...

Ch. 2: Self-Selection Models in Corporate Finance 53 tendency has been to report estimates of matching models and as a robustnes ...