Alternative Variable Specifications Research Articles

The interplay of board gender diversity, debt financing, and sustainable investment: evidence from Europe

ABSTRACT In this study, we examine the moderating effect of debt financing on the relationship between board gender diversity (BGD) and sustainable investment. Using a quantitative approach with a sample of 10,840 firm-year observations from publicly listed European firms during 2012–2022, we employ ordinary least squares and instrumental variable regressions to test our hypotheses and assess the moderating effect of debt financing. Our results, based on a theoretical framework that draws insights from stakeholder theory and agency theory, show that BGD has a positive and significant impact on sustainable investment, while debt financing has a negative and significant effect. Additionally, we find that debt financing negatively and significantly moderates the relationship between BGD and sustainable investment, attenuating the positive impact of BGD on sustainable investment. Our findings suggest that firms need to focus not only on the importance of BGD but also on the optimal use of debt financing to ensure effective investment in sustainable development. Our results are robust to alternative variable specifications and endogeneity concerns and offer important implications for practitioners and policymakers.

Air pollution and the mystery of high household savings in China

Despite consumption being a key measure of residential welfare, the relationship of the residential savings rates, an inverse proxy for household consumption, with air pollution is unclear. This study empirically examines the impact of air pollution on household savings rates, and the underlying mechanism. The results reveal that worsening air pollution significantly increases household savings rates; this finding holds under alternative variable specifications and employing instrumental variables to address endogeneity issues. The mechanism analysis demonstrates that air pollution enhances household savings rates through health risks. Heterogeneity analysis indicates that in developed areas with more comprehensive public medical service systems, the positive effect of air pollution on household savings rates weakens in second-tier cities and above as well as in high-income areas. Furthermore, improvements in commercial insurance coverage mitigates the positive effect of air pollution on household savings rates. Overall, this study explains the high savings phenomenon among Chinese households from an environmental perspective. The Chinese government should encourage the use of renewable energy, improve air pollution control, and reduce the inhibitory effects of air pollution on residential consumption.

Policy uncertainty and seasoned equity offerings methods

Based on a sample of U.S. seasoned equity offering (SEO) during the period 2002–2017, we examine how the choice of equity issuance method changes in response to policy uncertainty. We find that firms subject to high policy uncertainty are less likely to use accelerated offerings rather than other types of traditional seasoned equity offerings. Our results are robust to alternative variable specifications, propensity score matching method, IV approach, and the inclusion of additional controls. Also, the effect of policy uncertainty on accelerated offering decision is weaker for firms with better information environment, earnings quality, and governance structures. Further, policy uncertainty increases the cost of funds and lowers long-run abnormal returns after SEOs for firms subject to high levels of policy uncertainty.

Boardroom gender diversity and CEO pay deviation: Australian evidence

AbstractWe study whether boardroom gender diversity affects CEO pay. Specifically, we investigate the association between boardroom gender diversity and CEO pay deviation from the optimal level of CEO pay based on firm characteristics and market performance. Using a sample of 2,288 firm‐year observations for the period 2006–2014, we find that boardroom gender diversity is negatively associated with CEO pay deviation, suggesting that firms with gender‐diverse boards are cautious about the consequences of CEO pay deviation (under/overpayment), and thus likely to bridge the gap between CEO actual pay and expected pay. These findings provide important insights to the global discussion on executive compensation. Our findings are robust to alternative variable specifications, propensity score matching, difference‐in‐differences estimations, and generalised method of moments.

Privatization effect versus listing effect: Evidence from China

Previous studies show that profitability does not improve after share issue privatization (SIP) in China. We explore the possibility that the positive privatization effect can be overwhelmed by a negative listing effect, leading to an overall negative or insignificant SIP profitability change. Using the difference-in-differences approach with various matched samples, we show that there is a positive privatization effect and there is a negative listing effect on profitability. We also document evidence of a significant improvement in profitability after separating the “pure” privatization effect from the SIP effect. Our findings are robust to alternative variable specifications and methodological changes.

Does corporate R&D investment affect firm environmental performance? Evidence from G-6 countries

The rate of climate change due to global warming has become a substantial concern and appeared as a real-world phenomenon in the recent years. However, it is imperative to know how business enterprises alter such concern. Recent studies involve a variety of firm-level factors to create a robust link between business enterprises' environmental and financial performance. However, little is known regarding the role of research and development (R&D) investment on firms' environmental performance. Using a firm-level data for the period 2004–2016 from G-6 countries, this study empirically investigates how R&D investment affects the firm environmental performance measured by energy and carbon emissions intensities. We find that R&D investment improves the firm's environmental performance consistent with the theoretical argument of natural resource-based view (NRBV). Our findings are robust to alternative econometric specifications, alternative variable specifications, and sub-samples. Our findings offer novel insights to the policymakers, business managers, and regulators.

The impact of childhood neighborhood disadvantage on adult joblessness and income

Research on residential inequality focuses heavily on adult economic outcomes as crucial components of the intergenerational transmission of poverty. Yet, empirical evidence on whether youth neighborhoods have a lasting impact on adult economic outcomes at the national level is scarce. Further, we know little about how youth neighborhood effects on adult economic outcomes manifest. This study uses 26 years (14 waves) of restricted panel data from the NLSY79 and the NLSY Children and Young Adults cohorts – data that have never been used to analyze long-term neighborhood effects – to examine whether youth neighborhood disadvantage impacts adult economic outcomes through sensitive years in childhood, teen socialization, duration effects, or cumulative effects. Sibling fixed effects models that net out unobserved effects of shared family characteristics suggest that youth neighborhood disadvantage increases joblessness and reduces income in adulthood. However, exposure across specific developmental stages of youth does not appear to act as a significant moderator while sustained exposure yields pernicious effects on adult economic outcomes. Moreover, these results are robust to alternative variable specifications and cousin fixed effects that net out potentially unobserved confounders, such as the inheritance of neighborhood disadvantage across three generations.

The effects of revenue diversification and cross border banking on risk and return of banks in Africa

The paper analyses the implications of revenue diversification and cross-border banking for risk and return. We sample 320 banks across 29 African countries and employ System GMM estimator as a methodological approach to shed further light on the diversification-stability nexus by examining the complex interaction between three key variables: cross-border banking, diversification and bank stability. The results suggest that exploration risk reduces diversification as the level of capital increases when banks cross border to diversify across revenue generating activities. Our analyses further show that, banks in Africa derive absolute benefits from diversification if they cross border and diversify their revenue base concurrently. These results are robust to a range of controls including alternative variable specifications, regulatory environment that bank operate and methodology.

Does Cooperation Experience between an Engagement Audit Partner and a Quality Review Partner Affect Audit Quality?

We examine whether cooperation between an engagement audit partner and a quality review partner affects audit quality. Using China data, where an audit report is required to be signed by an engagement audit partner and a quality review partner, we find that the probability of auditors issuing a modified audit opinion increases, discretionary accruals decrease, and audit delays decrease as cooperation between the two partners increases. Our findings are robust to controlling for a number of firm and auditor characteristics, using alternative variable specifications, and running seemingly unrelated regressions. Collectively, our results suggest that cooperation experience between an engagement partner and a review partner increases audit quality by improving the efficiency of audit engagements.

Does the value of cash holdings deteriorate or improve with material weaknesses in internal control over financial reporting?

Abstract We find that cash holdings are more valuable for firms disclosing material weaknesses in the Sarbanes–Oxley (SOX) 404 internal control assessments. We estimate that the value spread for firms with weak controls vs. effective controls is about $0.25 for an extra dollar of cash. Our results are not driven by account-level weaknesses but by more severe, company-level weaknesses in internal control over financial reporting (ICFR). Further, the economic consequences of cash resources significantly decrease with the remediation of previously reported material weaknesses. These results suggest that the favorable (precautionary) impact induced by weak ICFR appears to more than offset the adverse (agency) effect entailed by ineffective ICFR. Overall, our results survive alternative variable specifications, sample splits, matched sample analyses, and a variety of controls.

Association between economic growth and early childhood undernutrition: evidence from 121 Demographic and Health Surveys from 36 low-income and middle-income countries.

Economic growth is widely regarded as a necessary, and often sufficient, condition for the improvement of population health. We aimed to assess whether macroeconomic growth was associated with reductions in early childhood undernutrition in low-income and middle-income countries. We analysed data from 121 Demographic and Health Surveys from 36 countries done between Jan 1, 1990, and Dec 31, 2011. The sample consisted of nationally representative cross-sectional surveys of children aged 0-35 months, and the outcome variables were stunting, underweight, and wasting. The main independent variable was per-head gross domestic product (GDP) in constant prices and adjusted for purchasing power parity. We used logistic regression models to estimate the association between changes in per-head GDP and changes in child undernutrition outcomes. Models were adjusted for country fixed effects, survey-year fixed effects, clustering, and demographic and socioeconomic covariates for the child, mother, and household. Sample sizes were 462,854 for stunting, 485,152 for underweight, and 459,538 for wasting. Overall, 35·6% (95% CI 35·4-35·9) of young children were stunted (ranging from 8·7% [7·6-9·7] in Jordan to 51·1% [49·1-53·1] in Niger), 22·7% (22·5-22·9) were underweight (ranging from 1·8% [1·3-2·3] in Jordan to 41·7% [41·1-42·3] in India), and 12·8% (12·6-12·9) were wasted (ranging from 1·2% [0·6-1·8] in Peru to 28·8% [27·5-30·0] in Burkina Faso). At the country level, no association was seen between average changes in the prevalence of child undernutrition outcomes and average growth of per-head GDP. In models adjusted only for country and survey-year fixed effects, a 5% increase in per-head GDP was associated with an odds ratio (OR) of 0·993 (95% CI 0·989-0·995) for stunting, 0·986 (0·982-0·990) for underweight, and 0·984 (0·981-0·986) for wasting. ORs after adjustment for the full set of covariates were 0·996 (0·993-1·000) for stunting, 0·989 (0·985-0·992) for underweight, and 0·983 (0·979-0·986) for wasting. These findings were consistent across various subsamples and for alternative variable specifications. Notably, no association was seen between per-head GDP and undernutrition in young children from the poorest household wealth quintile. ORs for the poorest wealth quintile were 0·997 (0·990-1·004) for stunting, 0·999 (0·991-1·008) for underweight, and 0·991 (0·978-1·004) for wasting. A quantitatively very small to null association was seen between increases in per-head GDP and reductions in early childhood undernutrition, emphasising the need for direct health investments to improve the nutritional status of children in low-income and middle-income countries. None.

The Informational Content of the Embedded Deflation Option in TIPS

In this paper we estimate the value of the embedded option in U.S. Treasury Inflation Protected Securities (TIPS). The option value exhibits significant time variation that is correlated with periods of deflationary expectations. We use our estimated option values to construct an embedded option price index and an embedded option return index. We then use our embedded option indices as independent variables and examine their statistical and economic significance for explaining the future inflation rate. In almost all of our regressions, the embedded option return index is significant even in the presence of traditional inflation variables, such as lagged inflation, the return on gold, the return on crude oil, the VIX index return, and the yield spread between nominal Treasuries and TIPS. We conduct several robustness tests, including alternative weighting schemes, alternative variable specifications, and alternative control variables. We conclude that the embedded option in TIPS contains useful information for future inflation, both in-sample and out-of-sample. Our results should be valuable to anyone who is interested in assessing inflationary expectations.

The Informational Content of the Embedded Deflation Option in TIPS

In this paper we estimate the value of the embedded option in U.S. Treasury Inflation Protected Securities (TIPS). The option value exhibits significant time variation that is correlated with periods of deflationary expectations. We use our estimated option values to construct an embedded option price index and an embedded option return index. We then use our embedded option indices as independent variables and examine their statistical and economic significance for explaining the future inflation rate. In most of our regressions, our embedded option return index is significant even in the presence of traditional inflation variables, such as the yield spread between nominal Treasuries and TIPS, the return on gold bullion, the VIX index return, and the lagged inflation rate. We conduct several robustness tests, including alternative weighting schemes, alternative variable specifications, and alternative data samples. We conclude that the embedded option in TIPS contains useful information for future inflation, both in-sample and out-of-sample. Our results should be valuable to practitioners, monetary authorities, and policymakers alike.