
Abstract
Researchers in empirical corporate finance often use bounded ratios (e.g., debt ratios) as dependent variables in their regressions. Using the example of estimating the speed of adjustment toward target leverage, we show by Monte Carlo and resampling experiments that commonly applied estimators yield severely biased estimates, as they ignore that debt ratios are fractional (i.e., bounded between 0 and 1). We propose a new unbiased estimator for adjustment speed in the presence of fractional dependent variables that also controls for unobserved heterogeneity and unbalanced panel data. This new estimator is suitable for corporate finance applications beyond capital structure research.
Item Type: | Journal article |
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Form of publication: | Publisher's Version |
Faculties: | Munich School of Management > Institute for Finance and Banking |
Subjects: | 300 Social sciences > 330 Economics |
URN: | urn:nbn:de:bvb:19-epub-59198-3 |
Alliance/National Licence: | This publication is with permission of the rights owner freely accessible due to an Alliance licence and a national licence (funded by the DFG, German Research Foundation) respectively. |
Language: | English |
Item ID: | 59198 |
Date Deposited: | 29. Nov 2018, 12:57 |
Last Modified: | 06. Jun 2023, 11:40 |