Event Study with Latent Variables

Questions about the implementation and application of the PLS-SEM method, that are not related to the usage of the SmartPLS software.
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Christian1988
PLS Junior User
Posts: 6
Joined: Mon Dec 12, 2016 12:59 pm
Real name and title: Christian

Event Study with Latent Variables

Post by Christian1988 »

Dear All,

I am a doctoral student and focus my work on corporate M&A. I would highly appreciate any input on my question!

I try to measure the effect of a Type II multi-dimensional second-order construct (reflective-formative type) as an independent variable on cumulative abnormal returns (CAR) as the dependent variable (DV). More precisely, my DV is the stock price reaction to M&A announcements.

Hence I try to combine survey data (latent variables) with stock market data. My controls largely consist of accounting data.

(1) Is my understanding correct, that I should calculate CAR for each transaction in STATA as the calculation in STATA more convenient and then I integrate the CARs in my dataset and calculate the relation between the IV (latent variable) and DV (CARs) in SmartPLS?
I also would integrate control variables (leverage, Tobin'sQ, Market Cap, etc.) in SmartPLS and would treat them as single item measurs (same for CARs). Would this be the right way to go along?

(2) It it correct that another possible way is to estimate the latent construct scores in SmartPLS and incorporate those in STATA to calculate the multivariate regression for my event study there (latent construct scores as IV and CAR as DV)? Is this way possible / as clean as the other one as well?

Thank you so much for your help!

Kind regards,
Christian
jmbecker
SmartPLS Developer
Posts: 1281
Joined: Tue Mar 28, 2006 11:09 am
Real name and title: Dr. Jan-Michael Becker

Re: Event Study with Latent Variables

Post by jmbecker »

Yes, I both ways should be possible and should ideally give you very similar results. Yet, they are not equivalent so don’t expect exactly the same results.
I would probably prefer version 1 if you would only estimate a normal regression in STATA. If you want to go with fixed or random effects then I would prefer version 2.
Dr. Jan-Michael Becker, BI Norwegian Business School, SmartPLS Developer
Researchgate: https://www.researchgate.net/profile/Jan_Michael_Becker
GoogleScholar: http://scholar.google.de/citations?user ... AAAJ&hl=de
Christian1988
PLS Junior User
Posts: 6
Joined: Mon Dec 12, 2016 12:59 pm
Real name and title: Christian

Re: Event Study with Latent Variables

Post by Christian1988 »

Dear Dr. Becker,

thank you very much for your answer.
I use option II (calculating latent construct scores / measurement model) in SmartPLS and calculating path coefficients / structural model in STATA) as I have a fixed effects regression.

Are there any published papers that follow a similar approach (using both SmartPLS and STATA for calculations).

Thank you so much for your help!

Kind regards,
Christian
jipkuijpers
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Joined: Thu Apr 14, 2022 12:31 pm
Real name and title: Jip Kuijpers master student

Re: Event Study with Latent Variables

Post by jipkuijpers »

Dear community,

I'm currently doing an event study for my Master's thesis and I've run into some problems with which I was hoping someone here can help me.
I'm researching whether a failed takeover has an effect on stock performance by measuring the CAR (cumulative abnormal returns) for a 3, 5, 150, and 180 days event window. I have calculated the CARs and now have a dataset with 159 deals, including all control variables. However, as my IV is an event, the failed takeover, and there is no data included about succeeded deals, I do not know which type of analysis to use. I also don't even know how to describe my IV as it is not continuous or categorical, I would argue that it is a constant, but that doesn't help me very much.
Which type of analysis do I need in this case? should I calculate the AAR (average abnormal returns) and compare those to the CAR? However, that only gives me an extra dependent variable. My moderators in this are similarities between acquirer and target when looking at the industry, the nation they come from and the state they live in. I also do not know which analysis to use for testing whether there is a moderating effect, so if anyone here has an idea on what type of analysis I need to do (I'm using Stata btw), that would be of major help.
Maybe important to note is that the sample only includes US-based companies as this was the easiest way of getting the data to calculate the CAR.
Thank you in advance.

greetings,

Jip
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