The use of changes in equity value as a measure of the information content of announcements of changes in financial policy

Ronen Israel, Aharon R. Ofer, Daniel R. Siegel

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

Recent work uses the change in equity value surrounding an announcement of a change in financial policy as an explanatory variable in regressions that examine whether changes in financial policy convey information about firm performance. We explore the methodological and econometric issues of this approach and show that using the change in equity value as an explanatory variable can severely bias ordinary least squares estimates. We demonstrate the effect of this bias on standard statistical tests and conclude that the bias has a significant impact on the power of these tests. We propose an estimator to partially correct the biases.

Original languageEnglish (US)
Pages (from-to)209-216
Number of pages8
JournalJournal of Business and Economic Statistics
Volume8
Issue number2
DOIs
StatePublished - Apr 1990

Keywords

  • Corporate finance
  • Errors in variables
  • Event studies

ASJC Scopus subject areas

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Fingerprint Dive into the research topics of 'The use of changes in equity value as a measure of the information content of announcements of changes in financial policy'. Together they form a unique fingerprint.

Cite this