Alternative Specifications Research Articles

Earnings quality and board meeting frequency

We propose that corporate directors are in greater need of soft information about the firm when the quality of hard accounting information is low. We further propose that board meetings constitute a key opportunity for corporate directors to gather soft information about the firm, and empirically investigate the relationship between financial reporting quality and the board's soft information gathering, as revealed by board meeting frequency. Consistent with expectations, we find that boards meet more frequently when accruals quality is low. We further find that the proportion of outside directors, insider ownership, and SOX regulation moderate this relationship. The evidence is reinforced by analysis of management earnings forecasts, financial restatements, and internal control weaknesses and is robust to several alternative earnings quality specifications. Additional empirical tests suggest that our results are incremental to the alternative explanation of increased meeting frequency to address problems in the reporting process per se. We conclude that corporate directors seek more frequent board meetings as an alternative information source to low earnings quality.

Misbegotten methodologies and forgotten lessons from Tom Swift's electric factor analysis machine: A demonstration with competing structural models of psychopathology.

Confirmatory factor analysis (CFA) and its bifactor models are popular in empirical investigations of the factor structure of psychological constructs. CFA offers straightforward hypothesis testing but has notable pitfalls, such as the imposition of strict assumptions (i.e., simple structure) that obscure unmodeled complexity. Due to the limitations of bifactor CFAs, they have yielded anomalous results across samples and studies that suggest model misspecification (e.g., evaporating specific factors and unexpected loadings). We propose the use of exploratory factor analysis (EFA) to evaluate the structural validity of CFA solutions-either before or after the estimation of more restrictive CFA models-to (a) identify model misspecifications that may drive anomalous estimates and (b) confirm CFA models by examining whether hypothesized structures emerge with limited researcher input. We evaluated the degree to which predominant factor structures were invariant across contexts along the exploratory-confirmatory continuum and demonstrate how poor methodological choices can distort results and impede theory development. All CFA models fit well, but there were numerous differences in replicability and substantive interpretability. Several similarities emerged between bifactor CFA and EFA models, including evidence of overextraction, the collapse of specific factors onto the general factor, and subsequent shifts in how the general factor was defined. We situate these methodological shortcomings within the broader literature on structural models of psychopathology, articulate implications for theories (such as the p-factor) that are borne out of factor analysis, outline several remedies for problems encountered when performing exploratory bifactor analysis, and propose alternative specifications for confirmatory bifactor models. (PsycInfo Database Record (c) 2024 APA, all rights reserved).

Does managerial ability contribute to export product quality upgrading? Evidence from China

ABSTRACT This study investigated the impact of managerial ability on the quality of exported products. Consistent with our theoretical findings, our empirical results indicate that managerial ability positively affects export product quality. This finding is robust to alternative model specifications. Productivity is the main channel through which managerial ability drives export product quality upgrades. Additionally, the quality-driven effect of managerial ability is significant only for the largest and non-state-owned enterprises. Improvement in the institutional environment quality strengthens the quality-driven effect of managerial ability.

Energy price shocks and current account balances: Evidence from emerging market and developing economies

This paper investigates the effects of real energy price shocks on current account balances of 45 emerging market and developing economies. The investigation is based on country-specific structural vector autoregression models, where alternative specifications and identification schemes are considered for robustness purposes. The empirical results suggest that 1 % of a positive real oil price shock results in up to 0.11 (0.08) percentage points of a cumulative improvement (deterioration) in current account balances of oil exporters (importers) after five years, whereas 1 % of a positive real natural gas price shock results in up to 0.06 (0.04) percentage points of a cumulative improvement (deterioration) in current account balances of natural gas exporters (importers) after five years. Real coal price shocks result in higher current account balances of oil exporters and natural gas exporters, suggesting substitution of coal with oil and natural gas in such cases. When contributions of alternative real energy prices to the variance of current account balances are compared, real oil price shocks dominate those of real natural gas and real coal prices. The empirical results investigating the effects of oil demand versus oil supply shocks on current account balances suggest that oil demand shocks (rather than oil supply shocks) result in similar reactions of current account balances to real oil price shocks, supporting the view that the effects of oil demand shocks are different from those of oil supply shocks. The results are robust to the consideration of country-specific changes in real GDP and real effective exchange rates.

Inflation targeting and fiscal policy volatility: Evidence from developing countries

This paper studies the effect of inflation targeting (IT) on fiscal policy volatility. Using data for 83 developing countries over 1985-2020, estimations based on impact analysis methods reveal that IT adoption reduces fiscal policy volatility. This result is robust when using a wide set of alternative specifications related to additional control variables, different samples, alternative measures of the main variables, or alternative estimation methods. Consequently, contributing to the ongoing literature on fiscal policy volatility, our results suggest that reforms of the monetary policy management in the form of IT adoption may provide a useful policy for fighting fiscal discretion towards a reduction of fiscal policy volatility.

CEO–board connections and the cost of equity capital: International evidence

AbstractIn this article, we investigate the effect of chief executive officer (CEO)–board connections on the cost of equity capital in an international setting. We find that CEO–board connections have a significant negative effect on the cost of equity. Our results are robust to alternative variable measurements, model specifications, and potential endogeneity adjustments. Examining the channel, we show that social ties reduce information asymmetry issues. We further show that firm‐level operational complexities and investment intensity, as well as country‐level developmental attributes and culture, moderate the association between CEO–board connections and the cost of equity capital.

The Political economy of the minimum wage

I evaluate the effects of the 2016 minimum wage hike in Peru on the approval of government performance. My identification strategy exploits the regional heterogeneity in the share of workers directly affected by the increase to implement a series of difference-in-differences specifications. For every percentage point increase in the share of treated workers, the approval of the central government (i.e., the president) also increases by a percentage point. I find a partial spillover effect to other levels of government. These results are robust to a number of alternative specifications and falsification tests, and cannot be explained by the results of the 2016 presidential elections. My findings suggest that improvements in subjective living conditions and non-negative effects on observed labor market performance are the main mechanisms behind these causal effects.

Flying high in the sky: The airports decentralization reform and regional economic development in China

This paper uses the airports decentralization reform in China, 2003–2004, to explore the impacts of management structure of transportation infrastructure on the operational efficiency and the regional economy. The DID estimation shows that the operational efficiency of reformed airports significantly increase after the reform. We use a geo-coded micro-level panel dataset of Chinese manufacturing firms to estimate the economic impact of this reform. Our triple difference estimation explores three-dimension firm-level variations: location (i.e., near versus far from reformed airports), industry (i.e., high-skill-intensive industries relative to low-skill intensive ones), and year (i.e., before and after the reform). We find out that the high-skill-intensive firms with better airport access experience 8.6% more reduction in the inventory level, 2.4% more increase in manufacturing productivity, and 2.5% more increase in the value-added after the reform. Consistent with the existing literature, we show that the reform increases external investment and expands market access. Placebo tests on unaffected airports rule out alternative explanations. Our results are robust against various alternative specifications.

Bank Digital Transformation and Enterprise Innovation—Evidence from China

With the rapid advancement of digital technology, the banking industry has embarked on a journey of digital transformation. While existing literature primarily examines how these changes impact the banks themselves, our study focuses on a relatively unexplored aspect: the direct influence of bank digital transformation on the performance and behavior of borrowing enterprises. The research objective of this study is to explore the influence of bank digital transformation on the innovation performance of borrowing enterprises and the underlying mechanisms. Leveraging data from Chinese listed companies and commercial banks, we find a positive effect of bank digital transformation on enterprise innovation output as measured by firms’ patent applications. The findings remain robust across alternative model specifications, controls for regional digital economy development levels, and bank financial performance, as well as alternative measures of bank digital transformation. Mechanism tests show that bank digital transformation contributes to corporate innovation by alleviating corporate financial constraints and improving corporate governance. Further research demonstrates that bank digital transformation also helps promote corporate innovation efficiency as measured by the proportion of patent output to total R&D input and corporate innovation output as measured by firms’ invention patent applications and patent grants. Additionally, borrowing firms’ own digital transformations may substitute for bank digital transformation in their effect on innovations.

The Asymmetric Effect of Government Spending in the United States

In this paper, we test for the presence of asymmetric effects of government spending on output and employment rate using U.S. postwar states panel data. We estimate two “endogenous” asymmetry: (i) whether negative and positive government spending change has different multiplier impact on real output and employment; (ii) whether big or small change has different effects. Our empirical results show there are asymmetric effects in terms of positive and negative government spending, but the asymmetric effect of positive and negative government spending can vary for different dependent variables and there is no significant asymmetric effect on employment. For the asymmetry of big and small government spending, we observe the same asymmetric property for output and employment. In both cases, the differences of the effect of big and small change are non-significant. Our main results are robust to intersection of “endogenous” factors effects, alternative specification (or other additional controls) and longer change interval, but asymmetric effect might differ among different production sectors.

Exploring the acquisition behavior of penny stock firms

We document that penny stock firms' acquisition likelihood increases with firm size, sales growth, free cash flow, stock price volatility, and run-up, but decreases with leverage, the number of years since IPO, and Tobin's Q. These findings are validated in a stepwise regression framework and are robust to alternative model specifications. Penny stock acquirers prefer public targets and are more (less) likely to use stocks (cash) as the payment method. We also find that acquisitions announcement returns are higher for penny stock firms than for non-penny stock firms, even after accounting for firm- and deal-characteristics. Further analyses indicate that the increase in announcement returns is driven by the firm's improved information environment. Overall, we document that penny stock firms are significant players in the market for corporate control.

The impact of monetary and fiscal stimulus on stock returns during the COVID-19 Pandemic

We contribute to the literature by investigating the impact of monetary and fiscal stimulus and exchange rate on stock returns during the COVID-19 Pandemic in Australia, China, India, and Indonesia. By employing the machine learning approach, We find that monetary stimulus positively boosts the stock return of Indonesia. Contrary, fiscal stimulus adversely affected stock return in Australia. The exchange rate positively impacts stock return for both India and Indonesia during the COVID-19 Pandemic. However, the findings from this study reveal that both monetary and fiscal stimulus have no effect on the stock market return in the case of China and India. Policymakers needs better strategy to counter the extreme events like pandemic. Our model is robust to the alternative model specification.

Carbon price and firm greenhouse gas emissions

Drawing on the recent enthusiasm in the carbon markets, I examine the impact of carbon prices on firm greenhouse gas (GHG) emissions. Using a sample of 1591 firms from 23 European countries, I demonstrate that an increase in carbon price decreases corporate GHG. At hypothesized higher carbon pricing levels, I document that the effect of pricing on corporate GHG emissions is negative. The negative impact of high carbon prices manifests in other harmful gases such as sulphur and volatile organic compounds (VOCs). In evaluating how the various phases of the EU emission trading scheme have affected firm greenhouse gas emissions, I show that the negative effect of pricing became pronounced in Phase 3 of the EU ETS. The findings from this study are robust to alternative econometric specifications and further sample selection criteria.

Oil Palm Production and Educational Outcomes: Gender-Differentiated Evidence from Cameroon

Oil palm production continues to expand in many developing countries in the tropics. Its expansion has been associated with economic gains, but oil palm production could also have immense social implications, especially affecting human capital development with significant labour implications. We use a farm household dataset from a native but emerging oil palm production zone, Cameroon to examine the relationship between oil palm production and child educational outcomes such as enrollment rate, attendance rate and the number of school days missed. Using different analytical techniques, we show that oil palm production is positively associated with the enrollment rates of both boys and girls. We do not find any statistical relationship between oil palm production and attendance rates by gender. However, we find evidence of a strong negative association between oil palm production and the number of school days missed by boys. That is, oil palm production is associated with more school days attended by boys. Exploring the mechanism that could be explaining these results, we show that households may be investing the income gains from oil palm production in the human capital development of their children. Our results are robust over different regression estimators and alternative specifications. We also show that the results are unlikely to be driven by omitted variable bias. These findings have implications on whether oil palm production could stir integrated growth and human capital development, especially in rural areas.

Perceived discrimination and support for democracy among immigrants

ABSTRACT Does perceived discrimination and exclusion promote or hinder support for democracy among immigrants? While many studies investigate the drivers of prejudice and discrimination toward immigrants, relatively less is known about the impact of discrimination on immigrants’ political attitudes. In this paper, we assess whether perceived discrimination is associated with higher levels of support for democracy among Muslim immigrants using the EURISLAM survey dataset, which includes data from immigrants from Muslim-majority countries residing in four European countries. We find that in particular, perceived discrimination toward the ethnic or religious in-group is associated with increased support for democracy. These results are robust to alternative control variables, model specification, matching procedures and coefficient stability analysis. Our findings make an important contribution to understanding the implications of discriminatory experiences for immigrants.

Capital Age and Labor Investment Efficiency

This study examines how capital age affects the efficiency of corporate labor investments. Using a sample of 1,588 US firms from 1991 to 2016, we find that the efficiency of labor investments increases as technology ages. Subsample analysis on labor investment efficiency suggests that old capital decreases labor over- and underinvestment. Our results remain robust to alternative specifications and restricted to small firms and industries requiring high labor skills. These findings add to the growing literature examining how learning affects a variety of phenomena in finance. Managers' increased understanding of their capital over time facilitates the efficiency of corporate labor investments.

Association of Patient Race and Hospital with Utilization of Regional Anesthesia for Treatment of Postoperative Pain in Total Knee Arthroplasty: A Retrospective Analysis Using Medicare Claims.

Regional anesthesia for total knee arthroplasty has been deemed high priority by national and international societies, and its use can serve as a measure of healthcare equity. The association between utilization of regional anesthesia for postoperative pain and (1) race and (2) hospital in patients undergoing total knee arthroplasty was estimated. The hypothesis was that Black patients would be less likely than White patients to receive regional anesthesia, and that variability in regional anesthesia would more likely be attributable to the hospital where surgery occurred than race. This study used Medicare fee-for-service claims for patients aged 65 yr or older who underwent primary total knee arthroplasty between January 1, 2011, and December 31, 2016. The primary outcome was administration of regional anesthesia for postoperative pain, defined as any peripheral (femoral, lumbar plexus, or other) or neuraxial (spinal or epidural) block. The primary exposure was self-reported race (Black, White, or Other). Clinical significance was defined as a relative difference of 10% in regional anesthesia administration. Data from 733,406 cases across 2,507 hospitals were analyzed: 90.7% of patients were identified as White, 4.7% as Black, and 4.6% as Other. Median hospital-level prevalence of use of regional anesthesia was 51% (interquartile range, 18 to 79%). Black patients did not have a statistically different probability of receiving a regional anesthetic compared to White patients (adjusted estimates: Black, 53.3% [95% CI, 52.5 to 54.1%]; White, 52.7% [95% CI, 52.4 to 54.1%]; P = 0.132). Findings were robust to alternate specifications of the exposure and outcome. Analysis of variance revealed that 42.0% of the variation in block administration was attributable to hospital, compared to less than 0.01% to race, after adjusting for other patient-level confounders. Race was not associated with administration of regional anesthesia in Medicare patients undergoing primary total knee arthroplasty. Variation in the use of regional anesthesia was primarily associated with the hospital where surgery occurred.

Oil price uncertainty and corporate inventory investment

PurposeThis study examines the relationship between oil price uncertainty (OPU) and corporate inventory investments using a sample of 6,072 USA manufacturing firms from 1992 to 2019.Design/methodology/approachThe author's study employs a panel dataset to examine the relationship between OPU and corporate inventory investments. The author uses several alternative specifications such as fixed effects models, an instrumental variable analysis, an impact threshold for confounding variable (ITCV) analysis, alternative measures, additional control variables and the percent bias analysis to account for endogeneity issues.FindingsCorporate inventory investments decrease in response to high OPU. This decrease in inventory investments happens regardless of firms' expected stockout costs, information environment and reliance on external financing. As a potential mechanism, an uncertainty-induced increase in cash holdings contributes to this reduction in inventory investments. Also, the effect of OPU is non-linear and asymmetric. In response to the volatility of positive (negative) oil price changes, inventory investments decrease (increase) up to a certain point and increase (decrease) after that. Further, uncertainty-induced adjustments in inventory investments positively influence the operating performance of firms.Originality/valueThe author's study adds to the growing literature that examines the impact of OPU on corporate outcomes. Inventory investments directly affect business operations and could better reflect firms' responses to an uncertain environment.

ESG and debt structure: Is the nature of this relationship nonlinear?

The relationships between environment, social, and governance (ESG) scores and debt structure are examined using the two-stage least square model with annual data from Chinese listed firms over the 2011–2020 period. The research results suggest that the ESG composite scores and long-term debt have a U curve based nonlinear relationship. The results are robust to endogeneity concerns, alternative regression model specifications, alternative ESG scores, and after controlling for additional variables. In addition, the relationship between debt maturity and S scores (but not the E and G scores) is significant in the nonlinear model. Second, the effect of ESG on long-term debt is stronger for firms within polluting industries when compared to firms in less polluting industries. Third, the effect of ESG on long-term debt is stronger when economic policy uncertainty is low. Fourth, dynamic effect investigations show that ESG activities generate long-term effects on debt maturity. Finally, an inverse U curve relationship between ESG scores and cost of debt is documented. All these results are consistent with the well-established trade-off theory. Policy wise, firms should pay attention to the S dimension when considering debt structure, and to the economic policy environment when considering the impact of ESG activities on debt structure. Academic research can focus on verifying whether these results are generalizable across countries and the stage of economic development of markets investigated.

Bank market power and supervisory enforcement actions

This paper investigates the relationship between supervisory enforcement actions and bank market power. Employing a unique dataset on enforcement actions in Italy from 2006 to 2018, we first document that banks with higher market power are more likely to escape public scrutiny. Further, this effect is more substantial for local banks than commercial ones, coherent with the view that national supervisors are softer when dealing with local banks. Second, when uncovering the main characteristics of the banks with higher market power, we find that banks with higher market power do not outperform other banks in profitability but show a worse loan quality, suggesting that banks with higher market power have riskier loan portfolios than other banks and attract fewer enforcement actions. Our results are robust across several econometric techniques and alternative specifications by contributing to the long-lasting debate on the implications of the bank market power on financial stability, considering the role of enforcement actions.