Deleting unreported innovation

Ping Sheng Koh, David M. Reeb*, Elvira Sojli, Wing Wah Tham, Wendun Wang

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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Abstract

The absence of observable innovation data for a firm often leads us to exclude or classify these firms as non-innovators. We assess the reliability of six methods for dealing with unreported innovation using several different counterfactuals for firms without reported R&D or patents. These tests reveal that excluding firms without observable innovation or imputing them as zero innovators and including a dummy variable can lead to biased parameter estimates for observed innovation and other explanatory variables. Excluding firms without patents is especially problematic, leading to false-positive results in empirical tests. Our tests suggest using multiple imputation to handle unreported innovation.

Original languageEnglish
JournalJournal of Financial and Quantitative Analysis
Early online date15 Nov 2021
DOIs
Publication statusE-pub ahead of print - 15 Nov 2021

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© 2021 Cambridge University Press. All rights reserved.

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