2SLS Estimator Research Articles

Shared Governance and ESG Rating: Evidence From Korea

ABSTRACTThis paper examines how shared governance structure affects firms' ESG rating using unique co‐CEO data in Korea for 2012–2019. We argue that coordination issues, interpersonal conflicts, and mutual monitoring of cosmetic ESG activities under the co‐CEO structure would decrease ESG ratings. Consistent with the premise, we find that co‐CEO firms disclose lower ESG ratings, especially social scores, than firms led by solo CEOs. However, Korean business group Co‐CEOs disclose higher ESG ratings due to reputation concerns, insurance benefits, and responsibility toward society. We further find that the negative association between co‐CEO structure and ESG rating is more pronounced in firms with low cash holding and high product market competition. We perform 2SLS estimation, PSM sample analyses, and entropy balancing approach to address possible endogeneity concerns along with self‐selection bias problems, and the results reinforce our main findings.

Can green technologies serve as a pathway for women's socioeconomic inclusion in Africa?

This study aims to evaluate the effects of green technology innovations on the socio-economic integration of women in Africa from 2014 to 2023. To achieve this goal, a quantitative analysis of longitudinal data has been utilized through econometric techniques such as fixed effects models, Lewbel 2SLS (Two Stage Least Square) 2SLS estimates, and panel quantile models to address and mitigate potential endogeneity bias. The findings show a direct impact on women’s employment in high- and middle-income countries, particularly in renewable energy generation and sustainable agriculture, as a result of increased use of green technologies. Additionally, in these countries, better availability of renewable energy is related to the advancements made by women's education and household health. Yet, access to the economic opportunities that this technology enables for many women in lower-income parts of the world remains scarce. Hence, it is necessary to mainstream gender and institutional issues more into the green technology policies in Africa. It would lead to a fairer sharing of the socio-economic gains arising out of green technology adoption and help in promoting sustainable development.

Impacts of the Russia–Ukraine war on the welfare of palm oil producers and consumers in Indonesia

PurposeThis research aims to examine the impacts of the Russia–Ukraine war on the welfare of Indonesian palm oil producers and consumers.Design/methodology/approachThe research uses time-series data from 2000 to 2022 for inferential, simulation and descriptive analyses, coupled with a world vegetable oil trade model in the form of a system of simultaneous equations. The two-stage least squares (2SLS) estimation method with 37 simultaneous equations is used to estimate parameters.FindingsThe research results show that the Russia–Ukraine conflict has led to an increase in the welfare of Indonesian palm oil producers and consumers. A combination of domestic policies (replanting, export tax, mandatory biodiesel and domestic market obligation) has boosted Indonesian palm oil industry players welfare after the Russia–Ukraine conflict. On the other hand, it caused a decline in the welfare of cooking oil and biodiesel producers due to the surge in raw material costs and the decline in selling prices. Therefore, market differentiation for palm oil derivative products into international markets is required.Originality/valueThe results of this research provide empirical evidence to the Indonesian government regarding the importance of policies that regulate the demand and supply of palm oil compared to increasing palm oil production. The results of this research emphasize that the development of policies for the Indonesian palm oil industry needs to pay attention to global vegetable oil market fluctuations as well as the importance of holistic policies from the on-farm to the off-farm level to ensure that producers and consumers experience increased welfare.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-06-2024-0531

Effect of Corporate Social Responsibility Disclosure on Corporate Financial Performance in An Emerging Market

This study examines the relationship between corporate social responsibility (CSR) disclosure and financial performance among listed firms in Chengdu, China. Using the Chinese Academy of Social Sciences (CASS)-CSR 4.0 standard, we analyzed the extent and quality of CSR disclosures for 68 firms over the 2019–2020 period. To address endogeneity, we employed Ordinary Least Squares regression (OLS) regression and Two-Stage Least Squares (2SLS) estimations with two novel instruments. The findings reveal a positive correlation between CSR disclosure and accounting-based metrics such as Return on Assets (ROA) and Earnings per Share (EPS), while a negative relationship with Tobin’s Q underscores the complex dynamics with market valuation. Building on these insights, the study suggests policymakers incentivize voluntary CSR disclosures through tax benefits or regulatory advantages and consider mandating specific CSR information based on CASS-CSR and Global Reporting Initiative (GRI) frameworks. This approach could help enterprises define disclosure boundaries, enhance transparency, and foster accountability, offering valuable insights into the CSR-financial performance nexus in the emerging economy.

The Women Empowerment and Innovation Nexus: A Global Context

The aim of this study is to explain the influence of women's empowerment on innovation. To achieve this goal, we analyzed a global dataset from 1996 to 2020, covering 68 developed and developing countries and regions, which represent the most extensive sample available for the full core specification. In order to address endogeneity concerns, we apply the system GMM and Lewbel 2SLS estimators. Our results indicate a positive and statistically significant impact of women's economic empowerment on innovation. This effect is robust to alternative measures of innovation and women empowerment; the subcomponents of women empowerment; and alternative estimators that address endogeneity.

Does Earnings Management Impact Corporate Governance Disclosure? Evidence of Endogeneity from UK FTSE 100 Firms

The study investigates the impact of earnings management (EM) on corporate governance disclosure (CGD). The results of simultaneous equation modeling analysis using 3SLS estimation, firstly, provide evidence of endogenous (reverse causality and dynamic endogeneity) relationship between EM and CGD, where EM and CGD enhance each other and the previous CGD enhances the current CGD. Secondly, as expected, the used internal auditing characteristics, namely the number of audit committee (AC) meetings and the proportion of independent directors in the AC, influence CGD positively. Thirdly, the internal auditing characteristics interestingly exhibit negative impact on EM. Finally, the study contributes to knowledge by furthering the scant research on the unexplored theme of the impact of EM on CGD; diverting the inquiry from the impact EM on CGD vice versa; and the refinement of the methodological tools.

Energy development and industrialization: evidence from Africa

Purpose The purpose of this study is to analyze the impact of energy development on industrialization in African economies from 1990 to 2017. It aims to assess how access to electricity, energy use and overall energy development contribute to industrial growth. By using panel data analysis and advanced econometric techniques such as fixed effects, two-stage least squares (2SLS) and system-GMM estimation, this study seeks to provide empirical evidence and insights into the complex dynamics between energy policies and industrialization outcomes. The findings are intended to inform policymakers and stakeholders on effective strategies to promote sustainable industrial development in the region. Design/methodology/approach This study uses a quantitative approach using panel data analysis spanning 1990–2017 from various sources. It uses fixed effects, 2SLS and system-GMM estimation methods to investigate the nuanced relationship between energy development and industrialization in African economies. This comprehensive methodology facilitates a robust examination of how different dimensions of energy development influence industrialization outcomes, aiming to fill gaps in existing literature and provide insights for policy formulation and implementation. Findings The findings reveal that energy development significantly enhances industrialization in African economies. Access to electricity and energy use both positively impact industrial growth, with access to electricity showing a stronger influence. This study underscores the critical role of energy infrastructure in fostering industrial expansion and economic development. Moreover, robust econometric methods confirm these relationships across various specifications, highlighting the importance of tailored energy policies to sustain industrialization efforts in Africa. These findings contribute empirical insights to the literature and provide actionable recommendations for policymakers aiming to enhance energy access and promote sustainable industrial development in the region. Originality/value This study contributes to the literature by offering new insights into the relationship between energy development and industrialization in African economies. By using advanced econometric techniques and focusing on nuanced dimensions of energy access and use, it addresses gaps in previous research. The findings underscore the significance of energy infrastructure for industrial growth, highlighting policy implications for sustainable development in Africa. This research adds value by providing empirical evidence that informs strategies to enhance energy efficiency, expand access to electricity and promote industrialization, thus contributing to broader discussions on economic development and energy policy in the region.

Air pollution and firms' robot adoption: Evidence from China

Air pollution and firms' robot adoption: Evidence from China

Can military-experienced CEOs improve corporate outcomes?

Purpose This paper aims to assess the role of CEOs with military experience in shaping corporate outcomes in Vietnam and provide new insights into how these unique backgrounds influence corporate financial decisions and firm performance within the specific context of an emerging market. Design/methodology/approach This study uses a comprehensive data set of 323 non-financial firms listed in Vietnam over 2013–2021 to examine the association between military-experienced CEOs and corporate outcomes. The authors apply propensity-score matching analysis to address potential endogeneity issues and use 2SLS estimation to show the mechanisms through which military CEOs affect firm performance. Findings The authors find that firms led by CEOs with military backgrounds outperform their counterparts lacking this experience. Furthermore, the findings indicate that firms helmed by military-experienced CEOs tend to make more investments and maintain lower (higher) short-term (long-term) debt levels. Practical implications This study provides additional evidence on the influence of military CEOs on corporate outcomes, particularly in the context of an emerging market. It underscores the positive effects of skills acquired during military service on veterans’ civilian careers, particularly in business leadership roles. The findings are valuable for managers contemplating the recruitment of veterans, highlighting the potential advantages these individuals can bring to a company. Additionally, the results may inspire younger individuals to consider military training as a means to develop valuable characteristics that can enhance their personal and professional development. Originality/value The authors have observed the notable success in firms led by CEOs with military backgrounds since Vietnam’s renovation period in the 1980s. Yet, to the best of the authors’ knowledge, research on the influence of military-experienced CEOs in Vietnam remains scarce. This study is the first pioneering in shedding light on the diverse contributions of soldiers to the development of the Vietnamese economy.

Impacts of adaptation to climate change on farmers’ food security and level of sesame production in Western Ethiopia

The existence of multiple stresses and poor adaptive capacity make Africa most susceptible to climate change. In Ethiopia the potential adverse effects of climate change on the agricultural sector, the main stay of the country’s economy, are major concerns. To ensure food security, reducing the vulnerability of agricultural systems through different feasible adaptation strategies is one of the policy options in response to climate change impact This study is a first of its kind in examining the relative effectiveness of various adaptation strategies in ensuring farmers’ food security and enhancing level of sesame production in rural area of Western Ethiopia. In addition to data obtained from meteorological stations, cross-sectional data were collected interviewing 400 farm households. Descriptive statistics, two-stage least square (2SLS) and double-hurdle (D-H) models were used to analyze the data. The results of the study indicate that households are adapting using various strategies to the looming climate change in the area. The study also indicated that, though sesame production was negatively impacted by the climate hazards, smallholders have continued its production at minimum level due mainly to its high value crop character. 2SLS estimation results revealed that rainfall and temperature variability have negative impact on household’s food security. Moreover, the result indicates effectiveness of climate adaptation strategies namely agronomic practices, irrigation and soil and water conservation in reducing climatic risks and ensuring household food security. The result also implicitly indicated that farmers continued to adapt sesame production under risk climate and it is contributing to farmers’ food security. Further, the result revealed that climate change adaptation strategies have positively impacted the level of sesame production. Consequently, policy that augments households’ climate awareness and promotes adaptation decision and strategies could help reducing risks pertaining to climate and thereby improves farmers’ food security status and production of high value export potential crop—sesame.

Is Bowman’s paradox an empirical artifact? Evidence from Asian emerging countries

PurposeThis study aims to reconcile and address Bowman’s paradox empirical criticism from the lens of financial theory, corporate strategy and their econometric adversaries based on three issues, i.e. risk conceptualization, measurement and econometric modeling in Asian emerging countries (AEC).Design/methodology/approachThe study is conducted on panel data sampling from 2,872 firms across four Asian Emerging Countries (AEC) and employs a two-stage least squares (2SLS) estimation technique. We proposed a theoretical framework based on triangulation that outlines four risk-return relationships based on proxies derived from capital market and firm-level data and used different econometric models to answer Bowman’s paradox ongoing criticism.FindingsThe empirical results negate the empirical artifact viewpoint in AEC. The risk-return relationship estimated on firm accounting-based ratios or its combination with market-based measures supports Bowman’s paradox and thus upholds the corporate strategy point of view. Whereas the risk-return relationship based on market-based ratios upholds the financial theory point of view. However, the results are mixed when risk is subdivided into systematic and business risk. Our results are robust across standard deviation and semi-standard deviation-based measures of risk, and there is no evidence of a non-linear relationship.Originality/valueA compelling debate exists that Bowman’s paradox is an empirical artifact. We provide an innovative approach that aims to reconcile and address the ongoing debate by employing diverse risk-return proxies and econometric models in Asian emerging countries. Methodological issues such as endogeneity, sample biases, temporal fluctuations, downside risk variations, multiple moments of a variable and model misspecification are also addressed. This triangulation enhances the robustness of our analysis, providing a comprehensive perspective on AEC and laying the groundwork for future researchers to explore Bowman’s paradox through alternative measures and models.

Impact of fiscal poverty alleviation funds on poverty mitigation and economic expansion: evidence from provincial panel data in China

PurposeSince 2013, China has implemented targeted poverty alleviation policies, successfully eradicating absolute poverty nationwide by 2021. The fiscal funds allocated for poverty alleviation have significantly contributed to reducing poverty in impoverished areas. However, to date, there has been a lack of scholarly research specifically examining the effects of these fiscal poverty alleviation funds on both poverty reduction and economic growth. This study aims to address two key questions: What role do fiscal poverty alleviation funds play in reducing poverty? Additionally, do these funds contribute to economic growth?Design/methodology/approachProvincial panel data in China from 2010 to 2020 are used to test the impact of fiscal poverty alleviation funds on poverty reduction and economic growth. The empirical study of this paper primarily employs panel data within difference and two-stage least squares (2SLS) estimation for causal identification.FindingsPoverty alleviation funds positively influence China’s economic growth and significantly reduce the rural poverty rate. During the sample period, the contribution of poverty alleviation funds to economic growth reached 7.3%, and the contribution to the reduction of the poverty incidence rate was 8.4%.Originality/valueThe key contribution of this study lies in its novel approach of using empirical methods to probe the impacts of fiscal poverty alleviation funds on provincial economic growth. Additionally, this paper also empirically tests the mechanisms by which fiscal poverty alleviation funds promote growth and reduce poverty, mainly by improving the infrastructure development conditions in impoverished areas.

Controlling shareholders’ stock pledges and greenwashing–Evidence from China

Controlling shareholders’ stock pledges and greenwashing–Evidence from China

Taxation and Income Inequality in ASEAN Countries

Research Originality: This study contributes to literature by investigating the impact of taxation on income inequality, with a specific focus on Southeast Asian countries.Research Objectives: To investigate the impact of taxation on income inequality in Association of Southeast Asian Nations (ASEAN) countries.Research Methods: A panel data model focusing on ASEAN from 1998 to 2021 was used, and a two-stage least squares (2SLS) estimation method, incorporating fixed effects and instrumental variables was used. Tax instrument comprised two components, namely tax ratio, reflecting volume of tax; and tax structure, representing direct, indirect, and income taxes.Empirical Results: The results showed that tax ratio, direct tax, and income tax reduced income inequality in Southeast Asia. However, the magnitude of the impact should be more significant. Prioritizing education and improving the quality of workforce could effectively reduce income inequality, as shown by Singapore's success in this area.Implications: This study had significant implications for ASEAN policymakers, as it offered valuable insights into designing and implementing taxation policies to reduce income inequality and promote economic development across the region. JEL Classification: D63, H20, H23How to Cite:Alexander, A., Gitaharie, B. Y. (2024). Taxation and Income Inequality in ASEAN Countries. Etikonomi, 23(1), 397 – 414. https://doi.org/10.15408/etk.v23i2.32352.

Economic Impacts of the 1997 Compulsory Education Reform in Turkey: New Findings and Employment Analysis

This study investigates the economic impact of Turkey's 1997 compulsory education reform, which extended mandatory schooling from five to eight years. Utilizing data from the seventh wave of the World Values Survey and employing an instrumental variable approach with Two-Stage Least Squares (2SLS) estimation, we provide new insights into the reform's outcomes. The findings reveal that the reform significantly increased educational attainment and reduced gender disparities. However, the anticipated economic benefits were limited, with higher unemployment rates and a lower likelihood of high-skilled employment among treated cohorts. Additionally, those affected by the reform reported lower perceived improvements in their standard of living compared to their parents. These results suggest that the expansion of education increased the supply of educated individuals, potentially lowering the overall value of education in the labour market.

New quality productivity and environmental innovation: The hostile moderating roles of managerial empowerment and board centralization

As new quality productivity (NQP) emerges as a rising star of productivity that can effectively leverage technological innovation and sustainability, this study aims to explore the relationship between NQP and environmental innovation, with a particular focus on the roles of managerial empowerment and board centralization within the context of China A-share listed companies. Utilizing the entire sample of China A-share market from 2013 to 2022, the study analyses the effectiveness of various dimensions reflecting innovation engagement among Chinese listed companies. For measuring NQP, the entropy method is employed to calculate the weights. By controlling for industry and year effects, the study examines both the main and moderating effects of managerial empowerment and board centralization. Additionally, heterogeneity tests, robustness checks, and two-stage least squares (2SLS) estimation were conducted to address endogeneity concerns. The results demonstrate that NQP significantly enhances environmental innovation, with managerial empowerment supporting this positive effect and board centralization obstructing it. The positive effect of NQP is particularly evident in state-owned enterprises, while in heavily polluting industries, the anticipated positive moderating effect of top managers disappears due to strict regulatory environments. Furthermore, board centralization negatively moderates environmental innovation, especially in lightly polluting sectors where internal governance is more sensitive. The study underscores the importance for policymakers to tailor regulations that balance managerial empowerment and board centralization to enhance the transformation of NQP into environmental innovation. Future research is needed to further investigate different background settings and the mechanisms through which NQP influences sustainability.

A Practical Guide to Weak Instruments

We survey the weak instrumental variables (IV) literature with the aim of giving simple advice to applied researchers. This literature focuses heavily on the problem of size inflation in two-stage least squares (2SLS) two-tailed t-tests that arises if instruments are weak. A common standard for acceptable instrument strength is a first-stage F of 10, which renders this size inflation modest. However, 2SLS suffers from other important problems that exist at much higher levels of instrument strength. In particular, 2SLS standard errors tend to be artificially small in samples where the 2SLS estimate is close to ordinary least squares (OLS). This power asymmetry means the t-test has inflated power to detect false positive effects when the OLS bias is positive. The Anderson-Rubin (AR) test avoids this problem and should be used in lieu of the t-test even with strong instruments. We illustrate the practical importance of this issue in IV papers published in the American Economic Review from 2011 to 2023. Use of the AR test often reverses t-test results. In particular, IV estimates that are close to OLS and significant according to the t-test are often insignificant according to AR. We also show that for first-stage F in the 10–20 range there is a high probability that OLS estimates will be closer to the truth than 2SLS. Hence we advocate a higher standard of instrument strength in applied work.

The Simultaneity of Strategic Financial Decisions: Evidence from PSX listed Firms

This study investigates the interrelationships among financing, dividends, and the investment choices of non-financial firms listed on PSX. Unlike previous research, which primarily focused on developed nations with well-developed financial markets and investor protection laws, this study examines businesses in a developing economy characterized by fragile corporate governance, precarious investor protection laws, and political instability. The aim of this study is to shed light on the unique decision-making processes of managers operating in such contexts. This study employs a framework of simultaneous equations considering the flow of funds identity and utilizes the 3SLS estimation technique, which addresses the limitations of single-equation estimation methods. The findings reveal significant interdependencies among corporate financing, dividends, and investment decisions. Financing decisions positively influence dividend decisions and vice versa. Similarly, financing decisions positively impact investment decisions and vice versa. Moreover, dividends and corporate investments have been shown to be competing uses of funds. The results highlight the sensitivity of all three financial decisions to internal cash flows. Additionally, leverage and internally generated cash flows are identified as alternative sources of funds, while investment and dividend decisions are constrained by both internal funds and external debt. These findings align with the flow of funds approach and provide valuable insights for corporate managers and investors to understand the dynamics of financial choices in non-financial firms. This study contributes to the literature by filling a gap in knowledge regarding the interactions among financing, dividends, and investment decisions in emerging markets.

Improving instrumental variable estimators with poststratification

Abstract Experiments studying get-out-the-vote (GOTV) efforts estimate causal effects of various mobilization efforts on voter turnout. However, there is often substantial noncompliance in these studies. A usual approach is to use an instrumental variable (IV) analysis to estimate impacts for compliers, here being those actually contacted by the investigators. Unfortunately, popular IV estimators can be unstable in studies with a small fraction of compliers. We explore poststratifying the data (e.g. taking a weighted average of IV estimates within each stratum) using variables that predict complier status (and, potentially, the outcome) to mitigate this. We present the benefits of poststratification in terms of bias, variance, and improved standard error estimates, and provide a finite-sample asymptotic variance formula. We also compare the performance of different IV approaches and discuss the advantages of our design-based poststratification approach over incorporating compliance-predictive covariates into the two-stage least squares (2SLS) estimator. In the end, we show that covariates predictive of compliance can increase precision, but only if one is willing to make a bias-variance trade-off by down-weighting or dropping strata with few compliers. By contrast, standard approaches such as 2SLS fail to use such information. We finally examine the benefits of our approach in two GOTV applications.

Exogeneity tests and weak identification in IV regressions: Asymptotic theory and point estimation

Exogeneity tests and weak identification in IV regressions: Asymptotic theory and point estimation