1
$\begingroup$

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?
$\endgroup$

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.