Selection Models in Accounting Research

TLDR

The study aims to explain the challenges of the Heckman (1979) selection bias procedure, assess its application quality in accounting research, and provide guidance for better implementation. The authors evaluate how the Heckman procedure is applied in accounting studies and offer recommendations for improved specification and robustness. A survey of 75 recent accounting articles reveals that many researchers use the Heckman technique mechanically with little appreciation of econometric issues, and empirical examples show that selection models are fragile, producing any outcome with minor specification changes, so the authors recommend justifying specifications and conducting sensitivity analyses to ensure robust evidence of selection bias. Data used are available from public sources identified in the study.

Abstract

ABSTRACT This study explains the challenges associated with the Heckman (1979) procedure to control for selection bias, assesses the quality of its application in accounting research, and offers guidance for better implementation of selection models. A survey of 75 recent accounting articles in leading journals reveals that many researchers implement the technique in a mechanical way with relatively little appreciation of important econometric issues and problems surrounding its use. Using empirical examples motivated by prior research, we illustrate that selection models are fragile and can yield quite literally any possible outcome in response to fairly minor changes in model specification. We conclude with guidance on how researchers can better implement selection models that will provide more convincing evidence on potential selection bias, including the need to justify model specifications and careful sensitivity analyses with respect to robustness and multicollinearity. Data Availability: Data used are available from public sources identified in the study.