• Management & Information Systems Review
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• v.31 no.4
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• pp.469-490
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• 2012

This study reviews the issue of endogeneity which has gained in importance in the empirical accounting researches in recent years. In so doing, I aim to call attention to the extent to which the presence of endogeneity limits the validity of empirical testing of models. More specifically, this paper explains what endogeneity is, its causes and consequences, and potential ways of managing the problem. The issues that concern endogeneity include, in the main, omitted variables, simultaneity, equilibrium conditions, choice variables. In this paper, I also discuss the implications derived from several selected empirical accounting research topics, that explicitly dealt with the problem of endogeneity. These include, among others, Oswald and Zarowin's (2007) study on the informativeness of capitalization of R&D, Hazarika et al. (2012) focusing on the relationship among internal corporate governance, CEO turnover, and earnings management, and a series of literature devoted to the associations between corporate governance structure and firm values. Finally, possible approaches for dealing with endogeneity are discussed.