THE PERILS OF ENDOGENEITY AND INSTRUMENTAL VARIABLES IN STRATEGY RESEARCH: UNDERSTANDING THROUGH SIMULATIONS Academic Article

abstract

• In this paper we use simulations to examine how endogeneity biases the results reported by ordinary least squares (OLS) regression. In addition, we examine how instrumental variable techniques help to alleviate such bias. Our results demonstrate severe bias even at low levels of endogeneity. Our results also illustrate how instrumental variables produce unbiased coefficient estimates, but instrumental variables are associated with extremely low levels of statistical power. Finally, our simulations highlight how stronger instruments improve statistical power and that endogenous instruments can report results that are inferior to those reported by OLS regression. Based on our results, we provide a series of recommendations for scholars dealing with endogeneity. Copyright 2013 John Wiley & Sons, Ltd.

authors

• Withers, Michael

published proceedings

• STRATEGIC MANAGEMENT JOURNAL

altmetric score

• 2.25

author list (cited authors)

• Semadeni, M., Withers, M. C., & Certo, S. T.

citation count

• 446

complete list of authors

• Semadeni, Matthew||Withers, Michael C||Certo, S Trevis

publication date

• July 2014

publisher

• Wiley  Publisher

published in

• Strategic Management Journal  Journal

keywords

• Endogeneity
• Instrumental Variables
• Ordinary Least Squares
• Simulations
• Strategy Research

Digital Object Identifier (DOI)

• 10.1002/smj.2136

start page

• 1070

end page

• 1079

volume

• 35

issue

• 7

URL

• http://dx.doi.org/10.1002/smj.2136