Exogenous Switching or Endogenous Selection: Using the Bond Issuers’ Choice of Underwriters as an Example

摘要

Empirical studies on corporate strategies are often concerned with endogenous selection bias. However, overly emphasizing the issue of endogeneity has left another important dimension of selection under-examined, i.e., the selection based on publicly observable characteristics of firms. Such an undue emphasis also leads to the misuse of the Heckman’s treatment model. In this paper, I use the bond issuers’ choice of commercial bank underwriting versus investment bank underwriting to demonstrate that a more appropriate model to use is “switching regressions with endogenous switching,” which provides a more explicit and richer description of the underlying matching process of issuers/underwriters than does the treatment model.