Revisiting Gaussian copulas to handle endogenous regressors

Jan Michael Becker, Dorian Proksch, Christian M. Ringle*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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Abstract

Marketing researchers are increasingly taking advantage of the instrumental variable (IV)-free Gaussian copula approach. They use this method to identify and correct endogeneity when estimating regression models with non-experimental data. The Gaussian copula approach’s original presentation and performance demonstration via a series of simulation studies focused primarily on regression models without intercept. However, marketing and other disciplines’ researchers mainly use regression models with intercept. This research expands our knowledge of the Gaussian copula approach to regression models with intercept and to multilevel models. The results of our simulation studies reveal a fundamental bias and concerns about statistical power at smaller sample sizes and when the approach’s primary assumptions are not fully met. This key finding opposes the method’s potential advantages and raises concerns about its appropriate use in prior studies. As a remedy, we derive boundary conditions and guidelines that contribute to the Gaussian copula approach’s proper use. Thereby, this research contributes to ensuring the validity of results and conclusions of empirical research applying the Gaussian copula approach.

Original languageEnglish
JournalJournal of the Academy of Marketing Science
Early online date11 Oct 2021
DOIs
Publication statusE-pub ahead of print/First online - 11 Oct 2021

Keywords

  • Endogeneity
  • Gaussian copula
  • Intercept
  • Linear regression
  • Multilevel models
  • Sample size
  • Simulation

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