Location:
Seminar room 3208
Date:
Wed, 26/10/202212:30-14:00
Lecturer:
Jeffrey L. Callen, Rotman School of Management, University of Toronto
Abstract:
Estimation of the Basu (1997) regression in the accounting literature suffers from some well-known and some lesser-known econometric endogeneity issues. Yet, ongoing research on accounting conservatism disregards these issues leading to parameter estimates that are biased and inconsistent. We study various econometric solutions to the endogeneity issues plaguing the Basu regression focusing primarily on the control function approach of Murtazashvili and Wooldridge (2016). Estimation results for various endogeneity solutions are presented and compared with the current state of the art. Importantly, at least for one well-referenced study, putative conservatism differences among firms disappear once the endogeneities are addressed.