Endogeneity Problem Research Articles

When Colleagues Come to See Each Other as Rivals: Does Internal Competition Affect Workplace Performance?

Abstract We study workplace performance effects triggered by team-internal rivalry. Specifically, we focus on duos of goalkeepers in professional soccer competing for in-season playing time. Using performance data from the most prestigious European soccer leagues and tournaments, we provide evidence for asymmetric discouragement: While the ex ante underdog feels demotivated by internal rivalry, we cannot observe a comparable effect for the ex ante favourite. Moreover, we find that workplace competition generally works explicitly rather than implicitly, meaning that demonstrated performance outweighs pure skills when it comes to the emergence of peer effects. To address a potential endogeneity problem caused by non-random selection, we show that our results are robust to quasi-random rotations caused by (minor to moderate) injuries and bans.

The impact of labor force aging on agricultural total factor productivity of farmers in China: implications for food sustainability

IntroductionThe rapid aging of the labor force has serious implications for socioeconomic development and poses challenges to food sustainability. Existing studies have focused on the impact of labor force aging on land productivity, but little attention has been paid to the comprehensive capacity of agricultural production, namely the total factor productivity of agriculture.MethodsWe estimate the impact of labor force aging on total factor productivity in agriculture using data from 170,506 sample farm households from the National Fixed Point Survey data from 2003 to 2020. We estimate the results using a panel fixed effects approach and mitigate the endogeneity problem using an instrumental variables approach to ensure the robustness of the estimates.Results and discussionThe results show that labor force aging has an adverse effect on the agricultural total factor productivity of farm households and remains robust after addressing endogeneity and substituting explanatory variables. The aging effect shows significant heterogeneity across different food functional areas with different types of farm households. The negative impact of labor force aging on total factor productivity in agriculture is mainly concentrated in the main grain-production and grain-producing and marketing-balanced areas. We also find that the negative impact of labor force aging is more significant among large-scale farmers. The mechanism analysis finds that the aging of the labor force adversely affects the agricultural total factor productivity by inhibiting technological progress and reducing the efficiency of agricultural resource allocation. These insights, when considered in the light of global trends towards agricultural labor aging, suggest that policy interventions aimed at promoting technological adoption, enhancing resource allocation efficiency, and supporting the transitioning of older farmers may hold promise for maintaining food sustainability and addressing the challenges posed by an aging agricultural workforce in numerous developing nations.

Relationships between digital engagement and the mental health of older adults: Evidence from China.

Based on the theory of socio-emotional selectivity, this study examines the effect of digital engagement on the mental health of older individuals using data from the 2018 China Longitudinal Aging Social Survey (CLASS). The results show that digital engagement has a significant effect on the mental health of older individuals, manifested by a decline in depression and an enhancement of cognitive abilities. The results are robust by Using instrumental variables to solve endogenous problem and the propensity score matching method to solve selective bias. The analysis of heterogeneity demonstrates that digital engagement can significantly reduce the depression level of older people without chronic diseases and at lower ages and promote the cognitive ability of older adults without chronic diseases and older adults of higher ages. Mechanistic analysis shows that digital engagement can reduce depression in older adults by alleviating loneliness and improving emotional well-being and cognitive performance by enhancing social support. Therefore, digital engagement gives older people a more positive emotional experience and more social support and thereby improves mental health, delivering proactive answers to the problems an aging population brings.

The impact of earnings opacity on corporate social responsibility: insights from Vietnamese listed firms

PurposeThis paper studies the association between earnings opacity and corporate social responsibility disclosures of firms listed on the Vietnamese Stock Exchange.Design/methodology/approachWe utilize a dataset comprising a sample of all listed Vietnamese firms for the period of 2014–2022. Data regarding corporate social responsibility information are gathered manually. Following Dechow et al. (1995), Kothari et al. (2005) and Bhattacharya et al. (2003), earnings opacity is measured by using three proxies, including abnormal accruals, earnings smoothing and loss avoidance. Our hypothesis was tested via ordinary least squares (OLS) regressions. To address endogeneity problems, we use the two-stage instrumental variable method (IV-2SLS) as well as the generalized method of moments (GMM) to ensure the robustness of our results.FindingsWe find that earnings opacity is positively related to corporate social responsibility disclosures. Cross-sectional analyses indicate that managers of firms disguise their opportunistic behaviour by disclosing more information about corporate social responsibility. The evidence also shows that firms experience long-run underperformance when having higher earnings opacity and greater sustainability disclosures. Our results remain robust even after correcting for endogeneity using the IV approach and the GMM method.Practical implicationsEvidence from this study can serve as a warning signal to the investment community, highlighting that some methods aimed at enhancing a firm’s corporate social responsibility disclosures might be used to obstruct other unethical activities. Moreover, the results of this study can help regulators gain a better comprehension of firms' reporting patterns concerning corporate social responsibility initiatives. It should not only reform the corporate social responsibility regulation but also impose stronger litigation for firms to enhance the quality of corporate social responsibility disclosures.Originality/valueWe are the first to present evidence regarding the relationship between earnings opacity and corporate social responsibility disclosure in Vietnam.

Overtime work and Chinese workers' physical and mental health: The mediating role of social support and work value awareness.

China was once called the world's factory. Chinese workers had long weekly working hours. However, the empirical results of the relationship between overtime work and workers' health are mixed and remain inconclusive. This study aimed to investigate how overtime work influenced workers' physical and mental health and the role of lifestyles, social support, and work value awareness. Data from the China Labor-force Dynamics Survey 2016 (N = 14,205) was used. The instrumental variable approach was employed to overcome the endogeneity problem between overtime work and workers' health. The bootstrapping method was conducted to elicit the role of lifestyles, social support, and work value awareness. The results indicated that overtime work significantly and negatively influenced Chinese workers' physical and mental health. The results of the bootstrapping suggested that workers' social support and work value awareness partially mediated the relationship between overtime work and their physical and mental health. However, the mediating role of lifestyles was insignificant. Through using big data with national representativeness, this study suggests that overtime work negatively influences Chinese workers' physical and mental health. Our findings provide policy implications for improving workers' health rights and well-being in emerging economies.

Modeling price-sensitive demand in turbulent times: an application to continuous pricing

AbstractPricing drives demand for service industries such as air transport, hotels, and car rentals. To optimise the price, firms have to predict real-time customer demand at the micro level and optimise the price. This paper contributes to revenue management by introducing a nonparametric statistical approach to predict price-sensitive demand and its application to continuous pricing. Continuous pricing lets service companies maximise revenue by using customers’ willingness to pay. However, it requires accurate demand estimations, particularly of customers’ price sensitivity. This paper introduces an augmented generalised additive model to estimate price sensitivity, which identifies substantial variations in price sensitivity, exceeds the predictive performance of state-of-the-art alternatives, and controls for price endogeneity. In addition, the demand model has variable price derivatives enabling continuous pricing. The proposed approach offers a simple and efficient way to implement continuous pricing with a closed-form solution. Our research also highlights the relevance of considering the problem of price endogeneity when estimating price-sensitive demand based on observations from prior pricing decisions. We demonstrate how continuous pricing is applied using empirical airline ticket data. We document a field study, which shows a revenue increase of 6% on average, and outline how the approach applies to turbulent market conditions caused by the COVID-19 pandemic, the surge in inflation since mid-2021, and the start of the Ukraine war in April 2022.

Digital transformation of enterprises empowers the development of new productive forces of enterprises

Based on the data of financial statements of A-share listed companies from 2015 to 2022 and ESG index data of Huazheng Company, this paper empirically analyzes the effect and mechanism of digital transformation on the new quality productive forces of enterprises. The results show that digital transformation can significantly promote the improvement of the new quality productive forces of enterprises, and the results are still valid after dealing with endogenous problems, eliminating special years and changing cluster test. Heterogeneity analysis shows that from the perspective of enterprise nature, the digital transformation of state-owned enterprises and high-tech enterprises has a more significant role in promoting the new quality productive forces of enterprises. The mechanism research shows that digital transformation can promote ESG practice of enterprises, and then promote the improvement of new quality productive forces level of enterprises. Therefore, it is proposed to accelerate the green transformation of enterprise development mode, promote the digital transformation of enterprises and corporate social responsibility governance by institutional supply, and strengthen the empowerment effect of internal governance of digital technology, hoping to provide useful reference for the development of new quality productive forces of enterprises.

Top managers' environmental experience and corporate environmental violations: Evidence from China

This study examines the effect of top managers' environmental experience on corporate environmental violations. We find that top managers' environmental experience is negatively associated with the likelihood and frequency of corporate environmental violations in China. Our conclusions are robust after addressing the potential endogeneity problems through matched-sample analyses and the difference-in-differences approach. Furthermore, the mechanism analyses show that top managers with environmental experience reduce corporate environmental violations by improving firms' environmental awareness, environmental expertise, and resources. Moreover, we find that the negative association between top managers' environmental experience and corporate environmental violations is more pronounced when firms face lower corporate governance pressure or when firms are subject to weaker government environmental governance pressure. Finally, we find that shareholders react much more positively to the appointment announcements of top managers with environmental experience, suggesting that the stock market does value top managers' environmental experience. Our findings offer important implications by showing that it is helpful to hire top managers with environmental experience to improve firms' environmental sustainability, which could be important for other emerging markets, which, like China, are facing increasing environmental deterioration.

Corporate tax avoidance and firm value: The moderating role of environmental, social, and governance (ESG) ratings

AbstractIn this study, we examine how managers in firms that have practiced tax avoidance strategically use sustainability activities together with their tax avoidance practices. More specifically, we investigate the moderating impact of ESG on the association between tax avoidance and firm value. Using a sample of French‐listed companies during the years 2012–2021, we hypothesized and found that ESG rating negatively and significantly moderates the relationship between corporate tax avoidance and firm market valuation. Overall, our results suggest that investors reward firms for good ESG performance, perceiving such companies as more valuable. However, when these firms engage in higher tax liabilities, the positive effect of ESG on firm value is slightly reduced. This nuanced insight highlights the importance of considering how tax strategies interact with ESG initiatives in shaping overall firm value. This study, thus, provides theoretical and practical consequences that will encourage businesses and politicians to promote sustainable development. Our findings remain robust to an array of tests, including a number of different tax avoidance measures and potential endogeneity problems.

Macroeconomic determinants of foreign direct investment in emerging economies in turbulent times – A case of COVID’19 pandemic

The study investigates the macroeconomic determinants of foreign direct investment (FDI) in emerging economies in turbulent times, taking the case of COVID’19 pandemic. Fifteen (15) countries were included for empirical investigations and the period of investigation spans 2019q1–2023q2 and the analytical framework is the Wang and Wong (2007) model. With recourse to various data stability tests, the panel system generalized method of moment is adopted as the technique of analysis to obtain optimal identification solution and address inherent problems of endogeneity and heterogeneity in estimations. For robustness, the sample was decomposed into two; emerging economies with history of high and low FDI receipts respectively. The results obtained show the sensitivity of macroeconomic determinants to these disaggregation and that lag counterparts of these variables play significant roles. The results further suggests that FDI is a substitute for real gross domestic product in emerging economies with history of high FDI receipts.

Intergroup ethnocentrism and social media: evidence from three Western democracies

ABSTRACT Mass media have long been known to be deeply linked to ethnocentrism and its consequences. Attitudes towards ethnic outgroups are shaped by news agendas, framing, and tone at least as much or more than by the realities of immigration. By contrast, comparatively little is known about social media and interethnic contact. Unlike mass news, the interactive features of social media use can combine information with a direct interethnic contact. This creates an online public sphere which has the potential of being ethnically more diverse than the offline public sphere. By reviewing and connecting the literature on intergroup contact and online political communication, the given study attempts to connect the optimal intergroup contact theory by Gordon Allport to the realities and affordances of social media. The empirical analysis relies on a three-country survey with 4532 respondents in France, the United Kingdom, and the United States. Mindful of the endogeneity problem in our cross-cutting data, we perform propensity score matching and find that spending more time on X (formerly Twitter) is correlated with lower intergroup ethnocentrism under randomized conditions. No such effect was found for Facebook. We also find that people who discuss politics with those that have different ethnicity or race via social media (or offline) are less ethnocentric.

Board gender diversity and accounting conservatism: the role of corporate social responsibility

Purpose This paper aims to provide deeper insights into the relationship between board gender diversity (BGD) and accounting conservatism by exploring the mediating role of corporate social responsibility (CSR) underlying this relationship. Design/methodology/approach The authors sample 10,252 firm-year observations from 932 publicly listed firms in 15 European countries over the 2010–2020 period. The authors conduct several models for panel data, applying mediation mechanisms, the Heckman two-stage model and the generalized method of moments and instrumental variable regressions to test the research hypotheses and account for endogeneity problems as well as unobservable heterogeneity. Findings Based on an integrated theoretical framework that draws insights from agency, resource dependence and stakeholder theories, the authors establish a positive and significant relationship between BGD and accounting conservatism, which is significantly mediated by CSR. The authors provide empirical evidence for the prior inconsistent results on the gender diversity-conservative accounting link and suggest that BGD promotes effective corporate governance and enhances CSR performance, which in turn, leads to higher conservatism in financial reporting. Practical implications The findings have important implications for regulators, policymakers and managers in understanding the drivers to ensure and control the quality of financial reporting. The results alert firms to the need to focus not only on the importance of BGD but also on CSR activities to ensure higher earnings reporting quality. Social implications The results are significant in encouraging a higher presence of women on corporate boards, enhancing CSR performance and drawing social attention to mitigating earnings management practices through higher conservatism in financial reporting. Originality/value This paper recognized a gap in the literature not yet examined and contributed to the body of knowledge through the mediating role of CSR in the relationship between gender diversity and accounting conservatism.

Can IP tribunals increase firm patent applications?—Empirical evidence from China

This paper aims to examine whether property rights protection can enhance firm innovation. To address the endogeneity problem and establish a causal relationship, we adopt the establishment of Intellectual Property Tribunals (IP Tribunals) in China as a natural experiment and employ the Difference-in-Differences (DiD) approach for estimation. By measuring firm innovation via patents and invention patent applications, we find that establishing IP Tribunals can significantly boost firm innovation. Furthermore, we investigate the heterogeneity of our baseline results and discover that privately-owned firms, smaller-sized firms, non-high-tech firms, and firms located in less marketized areas experience a larger improvement in innovation. This finding suggests that this institutional improvement provides greater protection to disadvantaged firms. Breaking regional protectionism and relaxing firm financing constraints are two possible mechanisms through which IP Tribunals can enhance firm innovation. Our results provide new evidence on how institutional change affects economic growth in China.

Related party transactions and earnings management under the UK different regulatory environments of the main and alternative investment markets

Beyond the recent research on related party transactions (RPTs), we study the impact of regulatory environment on RPTs and earnings management. Using a sample of United Kingdom (UK) public firms listed on the lightly regulated Alternative Investment Market (AIM) and the heavily regulated Main Market (Main) of the London Stock Exchange, we find evidence that firms on the Main Market use more efficient and less opportunistic RPTs than those in the AIM market. In addition, efficient RPTs are used as a substitute for the costly real earnings management in the Main Market. Our findings support the efficient contracting hypothesis under the stricter regulation of the Main Market which reduces information asymmetry and enhances internal resource optimization. Our results are robust controlling for endogeneity and selection bias problems.

Towards a low-carbon and beautiful world: assessing the impact of digital technology on the common benefits of pollution reduction and carbon reduction.

When ecology thrives, civilization thrives, and when ecology declines, civilization declines. Based on panel data from 30 provinces in China from 2000 to 2021, this study used marginal abatement costs to estimate the co-benefits of pollution reduction and carbon reduction. Two-way fixed effect and two-stage intermediary effect models were used to evaluate the impact of digital technology on co-benefits and its indirect channels. The results indicated that China's total carbon emissions maintained a steady growth trend, while air pollution showed a fluctuating declining trend. Reaching peak carbon neutrality calls for more innovative solutions. Under joint emission reduction efforts, the study revealed marginal abatement cost savings of 535.8 million yuan/million tons and 6216.5 million yuan/μg/m3 for carbon reduction and pollution reduction, respectively. Most importantly, the study confirmed that joint emission reduction programs can reduce environmental governance costs more than individual emission reductions can, and the co-benefits increased from 37.983 to 44.757. The co-benefits generally showed a trend of fluctuation and increases and had the characteristics of phased transformation. Intragroup differences and cross-overlapping between regions made regional differences in co-benefits obvious. The subversive, permeable, and integrated features of digital technology have resulted in the all-around transformation of the economy and society, and the new technology-economy paradigm has significantly improved co-benefits. The conclusion remains valid after robustness testing and controlling for endogeneity problems. The results of the mechanism analysis suggest that digital technology can indirectly improve synergies through the intermediary channels of fostering green technology innovation, reducing energy consumption intensity and improving the energy structure.

Do firms’ performance act as a catalyst of innovation: empirical evidence from innovative Indian manufacturing firms

PurposeThis paper aims to explore whether firms’ performance determines innovation using a sample of Indian manufacturing firms. The impact of innovation on firms’ performance across specific countries has been discussed in the literature. However, the effect of firms’ performance on innovation output, especially for a developing country like India, remains an open question. Against this backdrop, this paper investigates whether firms’ performance determines innovation in Indian manufacturing firms.Design/methodology/approachThe authors use patent filing information to instrument innovation and total factor productivity to instrument firms’ performance. The patent data are collected from the Patent Search and Analysis Software database and firm-level data from the Centre for Monitoring Indian Economy’s Prowess database. The study uses a sample of 309 Indian manufacturing firms from 2005 to 2021. Given the count nature of the data set used in this study coupled with over-dispersion issues, the authors have used the negative binomial regression to estimate the empirical specification of the models. There could be a possible problem of endogeneity due to the contemporary nature of innovation and firms’ performance. Therefore, to address the possible issues of endogeneity in the model, the authors have used the Generalized Method of Moments (GMM) estimators for more robustness checks of the empirical results.FindingsThe empirical results exhibit a positive and significant impact of firms’ performance on the innovation output, validating that firms’ performance determines innovation in Indian manufacturing firms. The posterior estimation results using GMM estimation also corroborate that firms’ productivity is a determining factor for the innovation output of Indian manufacturing firms. Furthermore, empirical results exhibit that the ex ante innovativeness of the firms substantially affects the current innovation. This validates that the firms’ prior experience, learning by doing and past innovative efforts are more likely to precipitate more innovation in the current period.Originality/valueThis paper’s main contribution is empirically estimating whether firms’ performance determines innovation, which is hardly discussed in the existing innovation literature, specifically using Indian manufacturing industries. Further, it adds to the existing literature in two other prominent ways. First, this paper investigates whether firms require ex ante expertise to innovate or if a firm starting from scratch can innovate significantly without any hindrances. Second, it enriches the literature by instrumenting innovation in output terms with the patent application against input measures of innovation, such as research and development expenditures, acquisition of machinery and equipment, while discussing the relationship between firms’ performance and innovation, specifically in the context of a developing economy like India.

Integrating endogeneity in survey sampling using instrumental-variable calibration estimator

The endogeneity problem arises when the auxiliary variables correlate to the error terms. In such cases, appropriate instrumental variables ensure efficient estimation. Calibration has recognized itself as an important methodological tool at a large scale to estimate the population total in survey sampling. Which does not offer efficient estimation in the presence of endogeneity. When endogeneity is present in the auxiliary variables, the calibration using endogenous auxiliary variables may produce biasedness and increase variance due to inappropriate model assumptions. In this article, we propose instrumental-variable calibrated estimators by using the classical instrumental-variables approach for the case of exact identification that are more efficient than conventional calibration estimators when some auxiliary variables are endogenous. The necessary properties of the proposed estimators are presented. Our study is backed by both the simulation study and a real data example to check the performance of the proposed estimators.

Bivariate Logit Models with Dummy Endogenous Regressors Using Copulas

Measuring the impact of a binary treatment on a binary response variable is of great interest in many medical, social and economic applications. Estimating such effect is very important when the endogeneity problem occurs. This research proposes a bivariate logit model to control endogeneity when the structural errors of the two equations are correlated. The copula approach will be applied to estimate the dependence between the binary treatment and the binary response; and hence, the joint normality assumption of the structural error is irrelevant. For estimation, the maximum likelihood method will be applied to estimate the model parameters. The performance of the copula bivariate logit model in estimating the dependence between the binary treatment variable and the binary response variable is assessed by the Average Treatment Effect (ATE) criterion in both simulation study and real medical data.

How does family business affect the association between corporate social responsibility disclosure and cost of debt in Indonesia?

AbstractThis study examines how corporate social responsibility (CSR) disclosure and family firms affect the cost of debt (COD) using a sample of companies listed on the Indonesia Stock Exchange between 2017 and 2020. Ordinary least square regression was applied to investigate this association. This study also addresses the endogeneity problem using the generalized method of moments (GMM). This study finds that CSR lowers a company's COD. Firms with more CSR reporting minimize information asymmetry and improve their reputation. Next, we investigate whether family ownership can moderate the relationship between CSR and the COD. These findings support the hypothesis that family ownership moderates the relationship between CSR and COD. It is possible that family businesses use CSR to maintain a good reputation among their stakeholders, thus producing more CSR reports. The findings contribute to the literature by providing empirical evidence on how CSR and family firms experience a lower COD capital in the emerging economy context of Indonesia. Furthermore, this study provides academic implications by investigating whether family ownership can be a moderator variable in the association between CSR and COD. The study also has practical implications for practitioners and regulators in creating policies that promote better CSR initiatives and corporate governance systems.

Identifying Simultaneous Equation Modelling for the Digital Competitiveness Index (IDSD) and Foreign Direct Investment (FDI) in their Influence on Economic Digitalization

Technological advances are causing rapid and comprehensive changes, especially in the digital economy sector. The strength of a society's digital competitiveness is an important asset to support the growth of the national digital economy and attract foreign direct investment. This study aims to identify the simultaneous relationship between the Digital Competitiveness Index (IDSD) and Foreign Direct Investment (FDI). The method used is Two Stage Least Squares (2SLS) to overcome endogeneity problems in existing regression models, using STATA 17 software for calculations. The data analyzed are panel data from 34 provinces in Indonesia for 4 years (2020, 2021, 2022, and 2023). The analysis shows that in the FDI model, IDSD, GRDP growth rate, and non-oil and gas exports have a significant effect on FDI. However, in the IDSD model, FDI has no significant effect on IDSD, while fintech lending and ICT capability of the community have a significant effect on IDSD. Based on the results, there is no simultaneous relationship between FDI and IDSD.