Table 9 Lewbel method of Two-Stage Least...

Table 9

Lewbel method of Two-Stage Least Squares (2SLS) for endogeneity test

	(1)	(2)	(3)	(4)	(5)	(6)	(7)
Variables	lnEPU	FSD score	Forecaster	Number of forecasts	Precision	Specificity	Horizon
Instrumented LnEPU		−0.116***	0.235***	0.091***	−0.434***	−0.379***	0.193***
Instrumented LnEPU		(0.024)	(0.011)	(0.033)	(0.057)	(0.066)	(0.021)
LnPCI	0.733***
LnPCI	(0.002)
LnSize	0.021***	−0.034***	0.031***	0.036***	0.067***	0.209***	0.001
LnSize	(0.001)	(0.005)	(0.002)	(0.010)	(0.019)	(0.024)	(0.007)
Leverage	0.029***	−0.136***	0.015**	−0.121**	0.053	−0.409***	−0.063*
Leverage	(0.004)	(0.023)	(0.007)	(0.053)	(0.086)	(0.111)	(0.033)
MTB	0.000***	0.002***	−0.001***	−0.001	−0.000	−0.000	−0.001
MTB	(0.000)	(0.001)	(0.000)	(0.001)	(0.001)	(0.001)	(0.000)
ROA	0.014***	0.067***	−0.001	−0.129***	0.135	0.570**	−0.032
ROA	(0.003)	(0.017)	(0.003)	(0.049)	(0.096)	(0.252)	(0.040)
CFOA	−0.013***	−0.207***	0.013***	0.602***	0.345**	0.753***	0.014
CFOA	(0.004)	(0.024)	(0.005)	(0.085)	(0.144)	(0.219)	(0.060)
Cash Volatility	−0.000	0.012	−0.002	−0.111***	−0.050	−0.244	−0.011
Cash Volatility	(0.001)	(0.008)	(0.002)	(0.033)	(0.085)	(0.159)	(0.027)
Sales Volatility	−0.000	0.046**	−0.020***	−0.118***	−0.135*	−0.248	−0.052
Sales Volatility	(0.003)	(0.020)	(0.006)	(0.044)	(0.072)	(0.356)	(0.033)
INVZ	0.001***	0.004***	0.001***	0.014**	−0.024**	0.006	−0.006
INVZ	(0.000)	(0.001)	(0.000)	(0.007)	(0.010)	(0.013)	(0.004)
GDP Growth	0.013***	−0.005**	−0.016***	−0.005*	0.021***	0.018***	−0.005**
GDP Growth	(0.000)	(0.002)	(0.001)	(0.003)	(0.005)	(0.004)	(0.002)
VIX	0.046***	0.001	−0.011***	−0.006***	0.013***	0.010***	−0.005***
VIX	(0.000)	(0.001)	(0.000)	(0.001)	(0.002)	(0.003)	(0.001)
Constant	−3.458***
Constant	(0.010)
Observations	61,356	61,356	61,356	11,910	11,910	7,455	11,910
Adjusted R-squared	0.740	0.006	0.029	0.013	0.027	0.118	0.009
Firm FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Diagnostic tests
Underidentification test		2,415	2,415	693.8	693.8	408	693.8
Chi-sq(1) P-val		0.000	0.000	0.000	0.000	6.85e−06	2.72e−07
Weak identification test		16,945	16,945	3,243	3,243	1,311	3,243
Hansen J statistic		15.40	427.4	138.2	72.96	42.22	25
Chi-sq(1) P-val		0.118	0.000	0.000	0.000784	0.438	0.00535
Endogeneity test		18.56	144.9	26.32	11.28	0.602	26.44
Chi-sq(1) P-val		1.64e−05	0.000	2.89e−07	0.000	0.000	0.000

	(1)	(2)	(3)	(4)	(5)	(6)	(7)
Variables	lnEPU	FSD score	Forecaster	Number of forecasts	Precision	Specificity	Horizon
Instrumented LnEPU		−0.116***	0.235***	0.091***	−0.434***	−0.379***	0.193***
Instrumented LnEPU		(0.024)	(0.011)	(0.033)	(0.057)	(0.066)	(0.021)
LnPCI	0.733***
LnPCI	(0.002)
LnSize	0.021***	−0.034***	0.031***	0.036***	0.067***	0.209***	0.001
LnSize	(0.001)	(0.005)	(0.002)	(0.010)	(0.019)	(0.024)	(0.007)
Leverage	0.029***	−0.136***	0.015**	−0.121**	0.053	−0.409***	−0.063*
Leverage	(0.004)	(0.023)	(0.007)	(0.053)	(0.086)	(0.111)	(0.033)
MTB	0.000***	0.002***	−0.001***	−0.001	−0.000	−0.000	−0.001
MTB	(0.000)	(0.001)	(0.000)	(0.001)	(0.001)	(0.001)	(0.000)
ROA	0.014***	0.067***	−0.001	−0.129***	0.135	0.570**	−0.032
ROA	(0.003)	(0.017)	(0.003)	(0.049)	(0.096)	(0.252)	(0.040)
CFOA	−0.013***	−0.207***	0.013***	0.602***	0.345**	0.753***	0.014
CFOA	(0.004)	(0.024)	(0.005)	(0.085)	(0.144)	(0.219)	(0.060)
Cash Volatility	−0.000	0.012	−0.002	−0.111***	−0.050	−0.244	−0.011
Cash Volatility	(0.001)	(0.008)	(0.002)	(0.033)	(0.085)	(0.159)	(0.027)
Sales Volatility	−0.000	0.046**	−0.020***	−0.118***	−0.135*	−0.248	−0.052
Sales Volatility	(0.003)	(0.020)	(0.006)	(0.044)	(0.072)	(0.356)	(0.033)
INVZ	0.001***	0.004***	0.001***	0.014**	−0.024**	0.006	−0.006
INVZ	(0.000)	(0.001)	(0.000)	(0.007)	(0.010)	(0.013)	(0.004)
GDP Growth	0.013***	−0.005**	−0.016***	−0.005*	0.021***	0.018***	−0.005**
GDP Growth	(0.000)	(0.002)	(0.001)	(0.003)	(0.005)	(0.004)	(0.002)
VIX	0.046***	0.001	−0.011***	−0.006***	0.013***	0.010***	−0.005***
VIX	(0.000)	(0.001)	(0.000)	(0.001)	(0.002)	(0.003)	(0.001)
Constant	−3.458***
Constant	(0.010)
Observations	61,356	61,356	61,356	11,910	11,910	7,455	11,910
Adjusted R-squared	0.740	0.006	0.029	0.013	0.027	0.118	0.009
Firm FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Diagnostic tests
Underidentification test		2,415	2,415	693.8	693.8	408	693.8
Chi-sq(1) P-val		0.000	0.000	0.000	0.000	6.85e−06	2.72e−07
Weak identification test		16,945	16,945	3,243	3,243	1,311	3,243
Hansen J statistic		15.40	427.4	138.2	72.96	42.22	25
Chi-sq(1) P-val		0.118	0.000	0.000	0.000784	0.438	0.00535
Endogeneity test		18.56	144.9	26.32	11.28	0.602	26.44
Chi-sq(1) P-val		1.64e−05	0.000	2.89e−07	0.000	0.000	0.000

Note(s): This table presents the results of a two-stage least squares (2SLS) regression utilising Lewbel (2012)’s heteroscedasticity-based instrumental variable (IV) approach combined with the Political Polarization Index (Ln PCI) to address potential endogeneity in the relationship between Economic Policy Uncertainty (Ln EPU) and corporate disclosure quality. Column (1) presents the first-stage regression results, where internally generated Lewbel IVs based on model heteroscedasticity and the Political Polarization Index are employed as instrumental variables for Ln EPU. Columns (2) through (7) report the second-stage regression results, where the instrumented Ln EPU is used as the main explanatory variable to evaluate its effect on various corporate disclosure measures, including FSD Score, Forecaster, Number of Forecasts, Precision, Specificity, and Horizon. The bottom of the table presents the results of four instrument diagnostic tests. The 2SLS regression model is utilised for the analysis with firm fixed effects based on Gvkey. The coefficients related to firm fixed effects are suppressed in the respective columns for brevity. All models include a constant term. Robust standard errors are presented in parentheses and are clustered at the establishment level. Statistical significance is denoted by ***, **, and * at the 1%, 5%, and 10% levels, respectively. All variables are defined in Appendix 1

Source(s): Authors’ own work

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