Ch. 2: Self-Selection Models in Corporate Finance 83
- Conclusions
Our review suggests that self-selection is a growth area in empirical corporate finance.
The rapidly expanding number of applications undoubtedly reflects the growing recog-
nition in the finance profession that self-selection is an important and pervasive feature
of corporate finance decisions. The range of econometric models in use is also grow-
ing as techniques diffuse from the econometrics literature to finance. However, the key
issue in implementing self-selection models still remains the choice of specification,
particularly the economic assumptions that make one model or another more appropri-
ate for a given application. One size does not fit all. Each self-selection model addresses
a different kind of problems, places its own demands on the type of data needed, and
more importantly, carries its own baggage of economic assumptions. The plausibility
of these assumptions is perhaps the primary criterion to guide what is used in empirical
applications.
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