Tobit models in strategy research: critical issues and applications

Tobit models have been used to address several questions in management research. Reviewing existing practices and applications, we discuss three challenges: (1) assumptions about the nature of data, (2) apparent interchangeability between censoring and selection bias, and (3) potential violations of key assumptions in the distribution of residuals. Empirically analyzing the relationship between import competition and industry diversification, we contrast Tobit models with other estimators and show the conditions that make Tobit a suitable empirical approach. Finally, we offer suggestions and guidelines on how to use Tobit models to deal with censored data in strategy research.