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...

Extreme value theory (EVT) deals with extreme (rare) events, which are sometimes reported as outliers. Certain textbooks encourage readers to remove outliers-in other words, to correct reality if it does not fit the model. Recognizing that any model is only an approximation of reality,...