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Models of Financial Microeconometrics

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Financial Microeconometrics

Abstract

The topics presented in this chapter focus on the examination of both the practical and the theoretical issues relating to the application of econometric techniques in corporate finance and accounting research based on microdata. We introduce a range of microeconometric models and techniques with detailed examples of relevant applications. Emphasis is also given to methodology that may be useful in studying causal effects in corporate finance and accounting. The final section takes a fresh look at good practices in financial microeconometrics—in hope of avoiding unnecessary efforts that may lead to inaccurate results.

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Notes

  1. 1.

    In all the formulae throughout this book, small letters in bold denote column vectors. Vectors in Eq. (2.1) are \( {\boldsymbol{x}}_i=\left[\begin{array}{c}\begin{array}{c}1\\ {}{X}_{1i}\end{array}\\ {}\begin{array}{c}\begin{array}{c}{X}_{2i}\\ {}\vdots \end{array}\\ {}{X}_{ki}\end{array}\end{array}\right] \)and \( \boldsymbol{\beta} =\left[\begin{array}{c}\begin{array}{c}{\beta}_0\\ {}{\beta}_1\end{array}\\ {}\begin{array}{c}\begin{array}{c}{\beta}_2\\ {}\vdots \end{array}\\ {}{\beta}_k\end{array}\end{array}\right] \). Each vector here has the dimension (k + 1) × 1. This means it has k + 1 rows and 1 column. The product \( {\boldsymbol{x}}_i^{\prime}\boldsymbol{\beta} \) has dimension 1 × 1 and is called scalar product since its result is a single number (scalar).

  2. 2.

    Rating of Polish Corporate Governance Forum, 2004. For more information on corporate governance rankings and ratings, see Sect. 5.3.

  3. 3.

    Data from the year before the Sarbanes-Oxley act of 2002.

  4. 4.

    US directors are (roughly) the same as members of supervisory boards in European companies.

  5. 5.

    CCQUAL is constructed in such a way that its higher level is associated with higher compensation committee quality. Quality is measured individually for each characteristic. Initially, the sign of the regression parameter by that characteristic in the model explaining the remuneration of CEOs was found. The value of CCQUAL for each company is the sum of five numbers (0 or 1) for each of five characteristics (the variable representing the percentage of shares held by directors is ignored due to its insignificance). A value of 1 is given for the company if a specific characteristic is higher than the sample median for positive characteristics, or lower for negative characteristics. The average value of CCQUAL in this sample is 2.08.

  6. 6.

    Earnings before interest, taxes, depreciation, and amortization.

  7. 7.

    This section uses several paragraphs from Gruszczyński (2018b).

  8. 8.

    This subsection first appeared in Gruszczyński (2018b).

  9. 9.

    Following Faff (2017) and Faff et al. (2017); also, Kennedy (2002) and Hyndman (robjhyndman.com/).

  10. 10.

    Following Kennedy (2002); Gruszczyński (2012b).

  11. 11.

    Gruszczyński (2012a, p.82).

  12. 12.

    However, bear in mind that the p-value “is not the king” (as discussed in Sect. 2.7).

  13. 13.

    Adams (2017); Prof. Adams reports her hints and suggestions in the form of “Adams’ alphabet” from A to Z, of which we have presented here only a few select items.

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  1. Institute of Econometrics, SGH Warsaw School of Economics, Warsaw, Poland

    Marek Gruszczyński

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Gruszczyński, M. (2020). Models of Financial Microeconometrics. In: Financial Microeconometrics. Springer, Cham. https://doi.org/10.1007/978-3-030-34219-7_2

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