Lecture11_Panel Data2_full.pdf - EC4305 Applied...

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EC4305 Applied Econometrics Semester 2, AY2017/18 Lecture 11 Panel Data II Dr SONG Changcheng 1
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Purpose of the lecture The role of fixed effects: Matching and control for unobserved time invariant characteristics Fixed effects interact with X can allow each unit to have different slopes on X Panel data regression: multiple DID 2
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Tobin’s Q theory Tobin’s Q: If the market value reflected solely the recorded assets of a company, Tobin's q would be 1.0 If Tobin's q is greater than 1.0, then the market value is greater than the value of the company's recorded assets. This suggests that the market value reflects some unmeasured or unrecorded assets of the company. if Tobin's q is less than 1, the market value is less than the recorded value of the assets of the company. This suggests that the market may be undervaluing the company 3
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Tobin’s Q theory If q>1, then firms have an incentive to increase their capital stock Because capital once installed and producing goods and services is priced more highly than it’s cost. The marginal product of capital will fall as the capital stock grows. This will tend to cause q to revert back towards unity If q<1, then firms should scrap capital, close plants etc. 4
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Investment to Q sensitivity I/K is the rate of investment during the period (the ratio of investment during year t to the end of year t - 1 capital stock) q is a measure of firm- specific Tobin’s q at the beginning of the period β is the sensitivity of investment to q 5
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Terminologies Earnings before interest and taxes (EBIT) =Revenue-Operating Expense SG&A: Selling, General and Administrative Expenses 6
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“Managing with Style: The Effect of Managers on Firm Policies” Bertrand, Marianne and Antoinette Schoar (2003) The Quarterly Journal of Economics 7
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Motivation Apple‘s Q3 FY’15 numbers beat market expectations on both earnings and revenues Robust demand for the iPhone (59% year-over- year revenue growth) Strong sales in Greater China (112% growth) Higher Mac sales (9% growth) Is the good performance due to market condition, Apple’s reputation or CEO’s strategy? 8
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Motivation There are similar questions in different institutions Do hospitals increase revenue due to its reputation or its doctors performance? Do lawyers win cases due to their law firms’ reputation or their own performance? The key to answer these questions is to separate the effects of individuals from the effects of institutions 9
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Motivation Question: How much do individual managers matter for firm behavior and economic performance? Existing empirical studies typically rely on firm-, industry-, or market-level characteristics to explain corporate behavior and performance This paper introduce the manager dimension to corporate finance CEOs and other top executives are key factors in the determination of corporate practices.
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