Signaling, Instrumentation, and CFO Decision-Making
Chemla, Gilles; Hennessy, Christopher A. (2021), Signaling, Instrumentation, and CFO Decision-Making, Journal of Financial Economics. 10.1016/j.jfineco.2021.07.014
TypeArticle accepté pour publication ou publié
Journal nameJournal of Financial Economics
MetadataShow full item record
Dauphine Recherches en Management [DRM]
Hennessy, Christopher A.
London Business School
Abstract (EN)Building parable economies embedding econometricians, we view alternative estimators (IV, fuzzy RD, natural experiments, OLS, event studies) from the perspective of privately-informed decision-makers, e.g. CFOs. IV estimates can be misleading since randomization through observable instruments eliminates signal content arising from discretion. If the goal is informing discretionary decisions, rather than predicting outcomes after forced/mistaken actions, instrumentation is problematic, whereas OLS or event studies can be sufficient. The analysis shows the utility of alternative estimators hinges upon oft-neglected assumptions about agent/econometrician information sets, as distinct from exclusion restrictions. We recommend parable economy estimation as precursor to real-world IV estimation.
Subjects / Keywordssignal; selection; instrumental variables; fuzzy regression discontinuity design; experiments; corporate finance; government policy
Showing items related by title and author.