An Introductory Note on the Difference-in-Differences and Regression Discontinuity Design for the Accounting and Finance Research

Abstract

As more emphasis is put on the endogeneity issues of accounting and finance research nowadays, a great number of studies exploit the observational data in a quasi-experimental setting to validate a causal relationship. This chapter provides an introductory note on two quasi-experimental methodologies — difference-in-differences design and regression discontinuity design for empirical researchers. We explain the fundamental ideas of these two techniques, summarize the critical tests that need to be done when applying them, and discuss some additional relevant analyses.