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Instrumental Variables Analysis and the Role of National Culture in Corporate Finance
Author(s) -
Nash Robert,
Patel Ajay
Publication year - 2018
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12248
Subject(s) - endogeneity , instrumental variable , relevance (law) , strengths and weaknesses , variable (mathematics) , variables , actuarial science , economics , econometrics , business , accounting , psychology , political science , statistics , social psychology , mathematics , mathematical analysis , law
In this article, we identify and review instrumental variables used to study the relation between national culture and finance. Recognizing that an effective instrument must be correlated with the endogenous variable (relevance condition) and must not be correlated with the outcome variable (exclusion condition), we conduct analysis and provide theoretical arguments to ascertain the ability of each candidate instrument to meet these criteria. We further document where to locate the data to form the actual instruments. Overall, we design this study to help future authors weigh the strengths and weaknesses of using specific instruments and to better inform empirical strategies for addressing the endogeneity concerns inherent in the “culture and finance” literature.