Critical Finance Review > Vol 5 > Issue 2

Shock-Based Causal Inference in Corporate Finance and Accounting Research

Vladimir Atanasov, College of William and Mary, USA, , Bernard Black, Northwestern University, USA,
Suggested Citation
Vladimir Atanasov and Bernard Black (2016), "Shock-Based Causal Inference in Corporate Finance and Accounting Research", Critical Finance Review: Vol. 5: No. 2, pp 207-304.

Publication Date: 21 Dec 2016
© 2016 V. Atanasov and B. Black
Causal inferenceShock-based inferenceDifference-in-differencesInstrumental variablesNatural experimentsRegression discontinuityPlacebo testsCorporate governanceIdentification


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In this article:
1. Introduction 
2. Shock-Based Research Design: Overview 
3. Research Designs in Empirical Corporate Governance 
4. Shock Based DiD Designs 
5. Shock-Based Event Studies 
6. Instrumental Variable Strategies 
7. (Regression) Discontinuity Designs 
8. Conclusion 


We study shock-based methods for credible causal inference in corporate finance research. We focus on corporate governance research, survey 13,461 papers published between 2001 and 2011 in 22 major accounting, economics, finance, law, and management journals; and identify 863 empirical studies in which corporate governance is associated with firm value or other characteristics. We classify the methods used in these studies and assess whether they support a causal link between corporate governance and firm value or another outcome. Only a stall minority of studies have convincing causal inference strategies. The convincing strategies largely rely on external shocks – usually from legal rules – often called “natural experiments”. We examine the 74 shock-based papers and provide a guide to shock-based research design, which stresses the common features across different designs and the value of using combined designs.