I am doing a research project to study the determinants of capital structure. However, I've run into two issues.
After downloading data from Compustat, I noticed there are a lot of missing values amongst the data, and I wonder how I can deal with this data? How is it usually done in finance literature?
The other problem I came across is strange to me, and one of my variables, Interest expsense, includes zero values and sometimes also negative values, which not only does not make sense but also poses issues in calculating coverage ratio. What do you suggest me to do in this case?
I highly appreicate your response.
Best
Saeed
There are different methods to handle missing data in financial data. One of the most useful methods is the imputation method which develops reasonable guesses for missing data. It’s most useful when the percentage of missing data is low.
Another method is to replace the missing value with one of the following strategies:
Missing data is a common problem in financial data. There are several methods to handle missing data in financial data. One approach is to replace the missing value with a constant value. This can be a good approach when used in discussion with the domain expert for the data we are dealing with. Another approach is to replace the missing value with the mean or median. This is a decent approach when the data size is small but it does add bias. A third approach is to replace the missing value with values by using information from other columns.
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