I am trying to find out determinants of corporate cash holdings for a panel dataset of 1696 firms over a period of 21 years. The dependent variable is the ratio of 'Cash and Cash Equivalents' to 'Total Assets' and hence its value, by definition, ranges from 0 to 1. The independent variables include firm-specific characteristics (mainly accounting variables from financial statements) and macroeconomic variables. I used FEM for estimation (after confirmation using Hausman Test) and obtained results in line with the theory. I have the following questions:

  1. Since my dependent variable ranges from 0 to 1 (by definition), should I use Tobit regression model?
  2. Since my model has endogeneity issues (due to Omitted Variable Bias and Simultaneity), I planned to address them through dynamic panel regression model. But if Tobit model is the correct estimation technique in my case , how can I combine it with Fixed Effects or dynamic panel regression?
  3. If a model demands Tobit regression technique and it is not applied, what are the effects on quality of estimates?

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.