Addressing endogeneity using propensity score matching
| Panel A: Pre-match propensity score regression and post-match diagnostic regression | ||
|---|---|---|
| Pre-match | Post-match | |
| (1) | (2) | |
| Dependent variable | INSDUM | |
| LNS | −0.689*** | 0.034 |
| (−61.248) | (0.496) | |
| K/S | −0.680*** | 0.042 |
| (−12.673) | (0.678) | |
| Y/S | −1.713*** | −0.620 |
| (−5.794) | (−0.888) | |
| R&D/K | −0.021*** | 0.004 |
| (−3.424) | (0.549) | |
| I/K | −0.492*** | −0.028 |
| (−8.062) | (−0.594) | |
| ROA | 0.050*** | 0.009 |
| (13.042) | (0.167) | |
| LEVERAGE | 0.677*** | 0.179 |
| (6.799) | (1.481) | |
| Age | −0.710*** | −0.055 |
| (−33.957) | (−0.214) | |
| Constant | 11.145*** | −0.234 |
| (83.717) | (−1.472) | |
| Observation | 36,157 | 17,471 |
| Pseduo R2 | 0.255 | 0.001 |
| Panel A: Pre-match propensity score regression and post-match diagnostic regression | ||
|---|---|---|
| Pre-match | Post-match | |
| (1) | (2) | |
| Dependent variable | INSDUM | |
| LNS | −0.689*** | 0.034 |
| (−61.248) | (0.496) | |
| K/S | −0.680*** | 0.042 |
| (−12.673) | (0.678) | |
| Y/S | −1.713*** | −0.620 |
| (−5.794) | (−0.888) | |
| R&D/K | −0.021*** | 0.004 |
| (−3.424) | (0.549) | |
| I/K | −0.492*** | −0.028 |
| (−8.062) | (−0.594) | |
| ROA | 0.050*** | 0.009 |
| (13.042) | (0.167) | |
| LEVERAGE | 0.677*** | 0.179 |
| (6.799) | (1.481) | |
| Age | −0.710*** | −0.055 |
| (−33.957) | (−0.214) | |
| Constant | 11.145*** | −0.234 |
| (83.717) | (−1.472) | |
| Observation | 36,157 | 17,471 |
| Pseduo | 0.255 | 0.001 |
| Panel B: Post-match difference in firm characteristics | ||||
|---|---|---|---|---|
| Variable | Treated | Control | Difference | t-test |
| LNS | 11.328 | 11.263 | 0.06 | 0.43 |
| K/S | 0.35 | 0.355 | −0.01 | −0.67 |
| Y/S | 0.085 | 0.085 | 0.00 | −0.46 |
| R&D/K | 0.162 | 0.146 | 0.02 | 0.3 |
| I/K | 0.152 | 0.155 | 0.00 | −0.42 |
| ROA | 5.1 | 4.907 | 0.19 | 1.08 |
| LEVERAGE | 0.187 | 0.184 | 0.00 | 1.06 |
| Age | 3.371 | 3.398 | −0.03 | −1.01 |
| Panel B: Post-match difference in firm characteristics | ||||
|---|---|---|---|---|
| Variable | Treated | Control | Difference | |
| LNS | 11.328 | 11.263 | 0.06 | 0.43 |
| K/S | 0.35 | 0.355 | −0.01 | −0.67 |
| Y/S | 0.085 | 0.085 | 0.00 | −0.46 |
| R&D/K | 0.162 | 0.146 | 0.02 | 0.3 |
| I/K | 0.152 | 0.155 | 0.00 | −0.42 |
| ROA | 5.1 | 4.907 | 0.19 | 1.08 |
| LEVERAGE | 0.187 | 0.184 | 0.00 | 1.06 |
| Age | 3.371 | 3.398 | −0.03 | −1.01 |
| Panel C: Post-match regression analysis | |||
|---|---|---|---|
| Dependent variable | Distance to default | Probability of default | CDS spread |
| (1) | (2) | (3) | |
| DIR | −0.012*** | ||
| (−3.758) | |||
| CEOIR | −0.010** | ||
| (−2.681) | |||
| EMPIR | 0.001 | ||
| (0.229) | |||
| LNS | 0.184*** | 0.155*** | 0.168*** |
| (17.609) | (13.608) | (15.320) | |
| K/S | 0.864*** | 0.956*** | 0.968*** |
| (17.782) | (17.578) | (18.450) | |
| Y/S | 7.046*** | 6.798*** | 6.941*** |
| (25.612) | (22.592) | (23.726) | |
| R&D/K | 0.027*** | 0.029*** | 0.031*** |
| (5.437) | (5.884) | (6.152) | |
| RDUM | 0.900 | 0.730 | 0.847 |
| (1.509) | (1.240) | (1.437) | |
| I/K | 0.021 | 0.040 | 0.047 |
| (0.686) | (1.273) | (1.505) | |
| ROA | 0.062*** | 0.065*** | 0.068*** |
| (16.850) | (16.342) | (17.450) | |
| LEVERAGE | −6.022*** | −5.909*** | −5.877*** |
| (−60.706) | (−52.212) | (−54.447) | |
| Age | −0.028 | −0.021 | −0.009 |
| (−1.218) | (−0.822) | (−0.379) | |
| Constant | 1.501** | 1.863*** | 1.589*** |
| (2.425) | (3.040) | (2.595) | |
| Observations | 17,471 | 13,391 | 14,886 |
| R-squared | 0.340 | 0.342 | 0.342 |
| Fixed year effects | Yes | Yes | Yes |
| Firm fixed effects | Yes | Yes | Yes |
| Panel C: Post-match regression analysis | |||
|---|---|---|---|
| Dependent variable | Distance to default | Probability of default | CDS spread |
| (1) | (2) | (3) | |
| DIR | −0.012*** | ||
| (−3.758) | |||
| CEOIR | −0.010** | ||
| (−2.681) | |||
| EMPIR | 0.001 | ||
| (0.229) | |||
| LNS | 0.184*** | 0.155*** | 0.168*** |
| (17.609) | (13.608) | (15.320) | |
| K/S | 0.864*** | 0.956*** | 0.968*** |
| (17.782) | (17.578) | (18.450) | |
| Y/S | 7.046*** | 6.798*** | 6.941*** |
| (25.612) | (22.592) | (23.726) | |
| R&D/K | 0.027*** | 0.029*** | 0.031*** |
| (5.437) | (5.884) | (6.152) | |
| RDUM | 0.900 | 0.730 | 0.847 |
| (1.509) | (1.240) | (1.437) | |
| I/K | 0.021 | 0.040 | 0.047 |
| (0.686) | (1.273) | (1.505) | |
| ROA | 0.062*** | 0.065*** | 0.068*** |
| (16.850) | (16.342) | (17.450) | |
| LEVERAGE | −6.022*** | −5.909*** | −5.877*** |
| (−60.706) | (−52.212) | (−54.447) | |
| Age | −0.028 | −0.021 | −0.009 |
| (−1.218) | (−0.822) | (−0.379) | |
| Constant | 1.501** | 1.863*** | 1.589*** |
| (2.425) | (3.040) | (2.595) | |
| Observations | 17,471 | 13,391 | 14,886 |
| 0.340 | 0.342 | 0.342 | |
| Fixed year effects | Yes | Yes | Yes |
| Firm fixed effects | Yes | Yes | Yes |
Note(s): Table 3 reports the results of the propensity score matching procedure to investigate the effects of insider ownership on default risk. Panel A reports the parameter estimates from the logit model used to estimate propensity scores. The dependent variable INSDUM in column (1) and (2) of Panel A is an indicator variable set to one if the firm has insider ownership score more than median in a given year, zero otherwise. Panel A reports the pre-match propensity score regression and post-match diagnostic regression. Panel B reports the univariate comparisons of firm characteristics between treated and control firms the corresponding t statistics. Panel C reports multivariate results relating to default risk and insider ownership. The dependent variables are distance-to-default. t-statistics are reported in parentheses. Variables are defined in Appendix and are winsorized at the 1–99% levels. ***, ** and * indicate statistical significance of coefficient estimates at the 1, 5 and 10% levels, respectively
Source(s): Table created by the authors