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A popular research design identifies the effects of corporate governance by (changes in) state laws, clustering standard errors by state of incorporation.
Using Monte-Carlo simulations, this paper shows that conventional statistical tests based on these standard errors dramatically overreject: in a typical design, randomly generated “placebo laws” are “significant” at the 1/5/10% level 9/21/30% of the time. This poor coverage is due to the extremely unequal cluster sizes, especially Delaware's concentration of half of all incorporations. Fixes recommended in the literature fail, including degrees-of-freedom corrections and the cluster wild bootstrap. The paper proposes a permutation test for valid inference.
Alibaba, the e-commerce giant that completed a record-breaking IPO in the United States in 2014 and in mid-2020 was valued at over $500 billion, is one of...
There is significant legal variation and uncertainty in the conflict of laws rules applicable to companies in the EU. While the case law of the Court of...