Empirical work on contracts typically regresses contract choice on observed principal and agent characteristics. If (i) some of these characteristics are unobserved or partially observed and (ii) there are incentives whereby particular types of agents end up contracting with particular types of...

Empirical work on contracts typically regresses contract choice on observed principal and agent characteristics. If (i) some of these characteristics are unobserved or partially observed, and (ii) there are incentives whereby particular types of agents end up contracting with particular types of...

Empirical work on contracts typically regresses contract choice on observed principal and agent characteristics. If (i) some of these characteristics are unobserved or partially observed, and (ii) there are incentives whereby particular types of agents end up contracting with particular types of...

This chapter discusses how applied researchers in corporate finance can address endogeneity concerns. We begin by reviewing the sources of endogeneity—omitted variables, simultaneity, and measurement error—and their implications for inference. We then discuss in detail a number of...