Endogeneity Problem Research Articles

Do Children Come First? Evidence From the Impact of Two Major Economic Crises on Children Education in Thailand

ABSTRACTThis study examined the impact of two major crises: the 1998 financial crisis and the 2021 COVID‐19 outbreak as well as the 1996 and 2019 non‐crisis period on child educational spending by Thai households. Using Thailand Socio‐Economic Survey (SES) data along with limited dependent variable models with an emphasis on correcting endogeneity problems were employed to achieve the objective. The results showed that households reduced educational spending in response to unemployment in both the 2021 crisis year and the 2019 non‐crisis period. More importantly households decreased educational spending due to unemployment in the 1998 and 2021 crisis period more than in the 1996 and 2019 non‐crisis period. Additionally, we only found households in the second and third income quartiles cut educational expenditure in response to unemployment.

The role of activity restrictions on financial intermediation costs in ASEAN countries

Purpose The purpose of this study is to examine the role of activity restrictions on the financial intermediation costs in ASEAN countries. Design/methodology/approach This study used the two-step system generalized method of moments approach to tackle the endogeneity problems. The sample consists of 130 banks from ASEAN countries covering the over 2009–2022 period. Findings This study provides valuable insights into various dimensions of activity restrictions within the banking across ASEAN countries. The findings highlight that imposing restrictions on activities such as securities, insurance and real estate can significantly elevate intermediation costs, affecting the overall efficiency of the banking sector. Furthermore, restrictions on ownership lead to higher intermediation costs by limiting operational flexibility, thereby constraining banks’ ability to optimize their financial services. Research limitations/implications The sample of this study is limited to banks in ASEAN countries and focuses only on the regulations restricting banking activities. Practical implications The findings suggest that policymakers should conduct a comprehensive review and potential adjustment of the existing regulatory framework related to restrictions on banking activities to strike an optimal balance between risk mitigation and fostering an environment that enhances banks’ efficiency. In addition, regulators could consider introducing regulatory reforms to ownership-related restrictions to promote greater flexibility and adaptability in the banking sector. Originality/value This research contributes to the field of banking by offering valuable insights for policymakers and regulators in ASEAN countries. It provides empirical evidence on the impact of activity restrictions on financial intermediation costs, highlighting key factors for developing more effective regulatory strategies.

Can farmers' digital literacy improve income? Empirical evidence from China.

This paper explore the impacts and mechanisms of digital literacy of farm households on income. The baseline regression of the impact of digital literacy of farm households on household income uses a fixed effects regression model, and the 2SLS regression model is used to address the endogeneity problem present in the model. The findings reveal that improving digital literacy among rural households significantly increases their family income, a result that remains robust even after considering endogeneity issues. Further examination of the mechanisms shows that enhancing digital literacy among rural households significantly improves their information acquisition capabilities and cognitive skills. It also deepens financial services, boosting the usage and engagement of rural households in digital financial activities, thereby enhancing family income levels. Facilitating rural residents' access to digital skills and tools to ride the digital economic wave, ensuring fair access, and achieving sustainable family income are of paramount significance for rural revitalization. It is also a crucial step in bridging the digital divide and promoting shared prosperity.

The influence of parents’ oral health literacy and behavior on oral health of preschool children aged 3–6 years- evidence from China

BackgroundDirect and indirect associations have been identified among health literacy, health behavior, and health status. Thus, we aimed to investigate the influence of oral health literacy and behaviors in parents on their children's oral health status. Moreover, we aimed to analyze the mentioned mediating effects through oral health behavior management.MethodsOral health information of 1,102 preschool children aged 3 to 6 years was collected from five primary schools in Jinjiang District, Chengdu City, Sichuan Province, China. The decay-missing-filled teeth (DMFT) index and soft scale plaque index (PI) were used by professional dentists aided by school teachers to assess caries and periodontal health among the children. Simultaneously, we conducted a questionnaire-based survey among the parents to determine their oral health literacy and health behavior and their children's oral health behavior. The probit model, instrumental variables, and mediation effect model were used to evaluate the association of parents' oral health literacy and behavior with their children's oral health status.ResultsThe DFMT index was 1.58 among the children, with zero caries in 646 (58.6%) children. The PI was 0.68, with zero gum disease in 517 (46.9%). The univariate analysis suggested that the parents' health literacy and behavior were correlated with their children's oral health status (P < 0.01). Parents' oral health behavior significantly affected their children's oral health status. Simultaneously, a stronger correlation was observed upon using parents' health literacy as an instrumental variable to assess the endogeneity, indicating endogeneity problems. Parents' health-related behaviors exerted a mediating effect on children's oral health, with parents helping children brush their teeth demonstrating the strongest effect.ConclusionParents' oral health-related behaviors can affect their children's oral health status. We recommend enhancing parents' oral health literacy to improve children's oral health status.

The impact of renewable energy consumption, green technology innovation, and FDI on carbon emission intensity: Evidence from developed and developing countries

Using 33 developed and 42 developing countries from 2000 to 2019, this study compares the heterogeneous impacts of renewable energy consumption, green technology innovation, and foreign direct investment (FDI) on carbon emission intensity (CEI). It is noteworthy that few studies have examined their collective impact on decreasing CEI from a comparative perspective among wealthy and poor nations, which is crucial for the formulation of targeted policy recommendations. Additionally, it also examines whether FDI moderates the mitigating effect of green technology innovation on CEI. Methodologically, multiplied models of pooled ordinary least square (OLS), two-way fixed effect, random effect, and fixed effect are employed to undertake asymmetric impact analysis. The endogeneity problem is addressed using both the System generalized method of moments (GMM) model and the instrumental variable approach. There is an interesting discovery: the marginal reduction effect of renewable energy consumption on CEI is much stronger in emerging countries with higher CEI compared to developed countries. Furthermore, implementing green technology innovation leads to a noticeable reduction in CEI in developed and developing countries, but the latter is still more effective. Moreover, FDI has a Pollution Haven effect on CEI in poor countries, whereas the anticipated Pollution Halo effect does not materialize in wealthy nations. Also, FDI acts as a mediator, reducing the adverse effects of green technology innovation on CEI in developing countries. This suggests that both Pollution Haven and Pollution Halo effects coexist in these regions, providing valuable insights into the conflicting results found in relevant studies. These findings provide practical insights for policymakers to customize successful measures to decrease CEI, especially in developing countries. Despite the substantial conflict they confront between environmental conservation and economic growth, their green measures are more effective than those of wealthy nations.

Do CSR practices affect perceived market performance through compliance status? Evidence from a quasi-natural experiment in India

PurposeThe study examines the impact of corporate social responsibility (CSR) non-compliance on firm value. It also investigates the moderating roles of ownership concentration and research and development (R&amp;D) intensity in this relationship.Design/methodology/approachFor hypothesis testing, the authors utilized panel data regression models on a dataset comprising 13,760 firm-years listed on the Bombay Stock Exchange, covering a period of nine years following the legislation (from March 2015 to March 2023).FindingsOur findings reveal a detrimental effect of mandatory CSR spending on the value of non-compliance firms, consistent with the notion of deterrence theory. Further, we find that the negative impact is more pronounced among widely-held firms compared to closely-held firms, aligning with shareholder activism and information asymmetry theory. Our subsequent tests indicate that R&amp;D intensity mitigates the negative impact, indicating a substitution relationship between CSR and R&amp;D expenditure. Consistent with this finding, we find a lesser negative impact of CSR non-compliance on firm value of widely-held R&amp;D intensified firms. Our findings are robust to the problem of endogeneity and self-selection bias.Practical implicationsOur findings highlight practical implications for managers regarding performance management. Managers should recognize that mandatory CSR spending can negatively impact performance, especially in widely-held firms, leading to shareholder dissatisfaction. To mitigate these effects, increasing R&amp;D investment is likely to buffer against the adverse impacts of CSR mandates. Firm managers should align R&amp;D efforts with CSR obligations to counterbalance costs and manage shareholder expectations, thereby maintaining performance and enhancing the perception of innovation among stakeholders.Originality/valueIt is the first study to consider the degree of compliance within firms while examining the impact of mandatory CSR spending on firm value. Also, the study is among pioneer attempts to investigate the moderating role of ownership structure and R&amp;D intensity on the relationship.

Zero-leverage and firm performance – Evidence from Taiwan

This study sets out to explore the influence of a zero-leverage policy on firm profitability and value. The results suggest that zero-leverage policy exhibits significant and positive effects on firm performance. This study also considers the potential mechanism of the zero-leverage variables and firm characteristics. The results proved that the zero-leverage policy can reduce the negative impact of corporate governance problems on the firm and further improve firm performance. Additionally, the zero-leverage policy can help firms lower their risk and enhance their overall performance. The zero-leverage is more effective in the improvement of firm performance if there are high financial constraints. This study obtains the results of robustness after controlling the endogeneity problem and testing for the industrial adjustment.

Racial diversity, interracial trust, and mental distress in post-apartheid South Africa

ABSTRACT The emerging difficulties and tensions in establishing inclusive and multicultural societies in the contemporary globalised world have necessitated the generation of ample empirical evidence in support of the socioeconomic and health benefits of racial diversity. This study contributes to the scholarly and policy discourses by examining the effect of racial diversity on mental distress in post-apartheid South Africa after several decades of racial segregation. We used all five waves (2008, 2010, 2012, 2014, and 2017) of the National Income Dynamics Survey (NIDS). After addressing the endogeneity problem in the racial diversity–mental distress nexus, our findings show that an increase in racial diversity is associated with a decrease in mental distress across the 52 districts of South Africa. This finding is consistently established when different quasi-experimental methods and alternative conceptualisations of racial diversity are employed to generate the results. We also found that racial diversity decreases mental distress more among females and urban residents. Further analyses revealed that interracial trust serves as a potential pathway through which racial diversity transmits to mental distress. We argue that people living in highly racially diverse neighbourhoods have the potential to experience a decrease in their mental distress through improved interracial trust.

Political accountability and social equity in public budgeting: Examining the role of local institutions

AbstractThis paper examines how local institutions in U.S. municipalities can affect budget allocations for socially disadvantaged groups, specifically focusing on eight key institutions related to electoral rules, power dynamics, and bureaucratic authority. Additionally, we develop a composite index to assess the overall level of (de)politicization within the local institutional framework. Theoretically, local institutions can shape public officials’ political accountability and administrative discretion during policy processes, thereby influencing their decision‐making on budget allocations. Empirical analyses primarily use data from ICMA's multiround national surveys and employ the historical background of municipalities as an instrumental variable (IV) to address potential endogeneity problems associated with local institutions. We find that local institutions that strengthen politicians’ political accountability to citizens lead to greater budget allocations for redistributive social welfare, thereby fostering social equity in public budgeting. Conversely, the institutions that enhance the authority of senior bureaucrats negatively affect budget allocations for redistributive social welfare.

The interaction effect of family ownership, board gender and skills on CSR strategy with ESG performance: evidence from ASEAN-5 countries

Purpose This study aims to examine how corporate social responsibility (CSR) strategy impacts environmental, social and governance (ESG) performance in public listed firms across the Association of Southeast Asian Nations (ASEAN)-5 countries. Additionally, it examines the interaction effect of family ownership, board gender diversity and board skills on the relationship. Design/methodology/approach This study used a fixed-effect panel regression to analyse 1,212 observations collected from ASEAN-5 public listed firms, covering the years 2017–2022. To address the endogeneity problem, this study used a two-step GMM. Findings The findings indicate that the ESG performance of firms in ASEAN-5 countries is significantly and positively influenced by their CSR strategy, suggesting that robust CSR strategies lead to superior ESG performance. Family ownership is found to weaken the positive impact of CSR strategy on ESG performance, indicating that family firms prioritize CSR less. Furthermore, female and skilful boards are more likely to implement effective CSR strategies, as reflected in their improved ESG performance. Practical implications This study urges firms, particularly family-owned firms, to enhance their CSR strategy. It also recommends that policymakers integrate gender diversity and a variety of skills into corporate boards, possibly by revising regulatory frameworks and corporate governance guidelines. Originality/value The results of this study are novel and specifically tailored for ASEAN firms. To the best of the authors’ knowledge, this study is among the first to examine the roles of board skills, gender diversity and family ownership in the relationship between CSR strategy and ESG performance in the ASEAN context.

Biodiversity risk and firm performance: Evidence from US firms

AbstractBiodiversity loss is considered as a critical global challenge with significant implications for ecosystems, economies, and societies. While the importance of biodiversity conservation is widely acknowledged, the extent to which biodiversity risk impacts firm performance remains an under‐explored area of research. This paper examines how biodiversity risk affects firm performance using a new measure of firm‐level biodiversity risk generated from textual analysis of firms' 10‐K reports. Our multivariate analysis shows that biodiversity risk significantly hinders performance of firms in the United States during the 2001–2021 period. The finding holds well after controlling various confounding factors, using alternative variable measurements, model specifications, and correcting for endogeneity problems in the biodiversity risk‐firm performance nexus. Besides decreasing sales growth and profitability, biodiversity risk increases in the cost of goods sold, as explained by the Cobb–Douglas production function. Interestingly, we find that the effect is stronger for firms in biodiversity‐sensitive industries, weaker for firms with more product innovation, and remains insignificant for firms with top‐tier performance. Our study provides policy and practical implications for businesses to mitigate biodiversity risk in this contemporary era of ecological degradation.

How does finance and accounting supervision affect stock price crash risk?

As an essential component of China's national supervision system, finance and accounting supervision plays an important role in regulating financial order, promoting economic development, and maintaining social stability. This study selects the special action of finance and accounting supervision as a quasi-natural experiment and conducts a difference-in-differences estimation to alleviates the problem of endogeneity. Using a sample of A-share listed firms from 2007 to 2013, this study examines the effect of finance and accounting supervision on stock price crash risk in the context of China. Our results indicate that firms subject to finance and accounting supervision are less likely to suffer a stock price crash. We explore the underlying mechanism and find that finance and accounting supervision mitigates firms' information asymmetry, thereby reducing future stock price crash risk. We also find that the negative effect of finance and accounting supervision on stock price crash risk is more pronounced for highly financialized firms, firms with larger management shareholding, and firms with poorer stockholder checks and balances. This study has significance for enriching research on the factors influencing stock price crash risk and assessing the effectiveness of finance and accounting supervision in the capital market.

Determinants of Banks Profitability: Evidence from Nigeria Banking Industry

The study, investigated determinants of banks profitability in Nigeria. Other studies in this area concentrated on other profitability notions, this study incorporated Economic Value Added (EVA). Due to the presence of endogeneity problems inherent in most panel data sets of this nature we employed a two-step system GMM estimator to produce a robust estimation and account for the endogeneity problem in the data. The study revealed that bank size has a positive and significant impact on all measures of bank profitability with the exception of Net Interest Margin (NIM). This result remained consistent after macroeconomic factors were introduced in the model. The outcome also indicated that capital adequacy significantly explains bank profitability in Nigeria, with a sign change in the case of Economic Value Added (EVA) only. It was also evident that financial structure (FS) has a positive and significant impact on Return on Assets (ROA), NIM, and EVA but no evidence of significant relationship was found with ROE. The result indicated that liquidity risk (LR) has a negative and significant impact on ROA and EVA but failed to provide a significant impact on ROE and NIM. The result of the macroeconomic factors included in the model indicated that Gross Domestic Product (GDP) has a positive and significant impact on NIM and EVA while no significant relationship was found when related to ROA and ROE. Inflation as a macroeconomic variable showed a significant relationship with ROA and ROE with no evidence of significant relationship with NIM and EVA. It was concluded that the impact of firm specific factors and macroeconomic variables on the profitability of the Nigerian banking sector differ according to the profitability measure employed.

A measurement study of the environmental quality and medical expenditures of elderly individuals: causal inference based on machine learning

BackgroundThe global surge of environmental pollution exacerbates health issues, disease incidence, and economic strain. In China, the increasing healthcare costs of the elderly population necessitate addressing this challenge as part of the “Healthy China” strategy. We explore the impact of environmental quality on elderly healthcare expenses.MethodsThis study devised a comprehensive environmental quality index for 30 Chinese provinces, excluding Tibet, which was correlated with medical expenses for individuals older than 60 years, using China Family Panel Studies (CFPS) data. Because the traditional econometric model cannot solve the endogeneity problem and the selection of instrumental variables is subjective, a new machine learning algorithm is adopted based on the traditional ordinary least squares (OLS) model and the fixed effect model to conduct causal analysis to ensure the reliability of the results. Finally, heterogeneity analysis was conducted based on the generalized random forest algorithm.ResultsSouthern provinces such as Jiangxi and Guangxi exhibited superior environmental qualities. A regional analysis revealed a gradient where environmental quality decreased from west to east and from south to north. Both conventional and machine learning methodologies underscored a pivotal finding: enhanced environmental qualities significantly curtail elderly healthcare expenses. A heterogeneity assessment revealed that such improvements predominantly benefit elderly people in the eastern and central regions, with marginal impacts in the west. For different groups, the improvement of environmental quality can significantly reduce the medical expenditure of people aged 60 to 75, with bedtime hours between 9 and 11 PM and a lower household income.ConclusionsThis study, employing machine learning and traditional models, demonstrates that enhancements in environmental quality significantly reduce medical costs for the elderly in China, especially in the eastern and central regions, and among demographics such as individuals aged 60–75 and low-income households. These findings underscore the potential of environmental policies to lower medical costs within the “Healthy China” initiative framework. However, the study’s scope is limited by the environmental quality index and the extent of data coverage, indicating a need for further research expansion.

Dealing with regression models’ endogeneity by means of an adjusted estimator for the Gaussian copula approach

AbstractEndogeneity in regression models is a key marketing research concern. The Gaussian copula approach offers an instrumental variable (IV)-free technique to mitigate endogeneity bias in regression models. Previous research revealed substantial finite sample bias when applying this method to regression models with an intercept. This is particularly problematic as models in marketing studies almost always require an intercept. To resolve this limitation, our research determines the bias’s sources, making several methodological advances in the process. First, we show that the cumulative distribution function estimation’s quality strongly affects the Gaussian copula approach’s performance. Second, we use this insight to develop an adjusted estimator that improves the Gaussian copula approach’s finite sample performance in regression models with (and without) an intercept. Third, as a broader contribution, we extend the framework for copula estimation to models with multiple endogenous variables on continuous scales and exogenous variables on discrete and continuous scales, and non-linearities such as interaction terms. Fourth, simulation studies confirm that the new adjusted estimator outperforms the established ones. Further simulations also underscore that our extended framework allows researchers to validly deal with multiple endogenous and exogenous regressors, and the interactions between them. Fifth, we demonstrate the adjusted estimator and the general framework’s systematic application, using an empirical marketing example with real-world data. These contributions enable researchers in marketing and other disciplines to effectively address endogeneity problems in their models by using the improved Gaussian copula approach.

EXPRESS: Addressing Endogeneity Using a Two-stage Copula Generated Regressor Approach

The ubiquitous presence of endogenous regressors presents a significant challenge when drawing causal inference using observational data. The classical econometric method used to handle regressor endogeneity requires IVs that must satisfy the stringent condition of exclusion restriction, rendering it unfeasible in many settings. Herein, we propose a new IV-free method that uses copulas to address the endogeneity problem. Existing copula correction methods require nonnormal endogenous regressors: normally or nearly normally distributed endogenous regressors cause model non-identification or significant finite-sample bias. Furthermore, existing copula control function methods presume the independence of exogenous regressors and the copula control function. While maintaining the Gaussian copula regressor-error dependence structure, our generalized two-stage copula endogeneity correction (2sCOPE) method simultaneously relaxes the two key identification requirements. Under the Gaussian copula dependence structure, we prove that 2sCOPE yields consistent causal-effect estimates with correlated endogenous and exogenous regressors as well as normally distributed endogenous regressors. In addition to relaxing the identification requirements, 2sCOPE has superior finite-sample performance and addresses the significant finite-sample bias problem due to insufficient regressor nonnormality. Moreover, 2sCOPE employs generated regressors derived from existing regressors to control for endogeneity, and can thus considerably increase the ease and broaden the applicability of IV-free methods for handling regressor endogeneity. We further demonstrate 2sCOPE’s performance using simulation studies and illustrate its use in an empirical application.

Do budget deficits cause current account deficits? a re-evaluation utilizing military expenditures as an instrumental variable.

The twin deficit hypothesis suggests that budget deficits are crucial factors leading to current account deficits, and substantial empirical evidence documents a significant positive statistical correlation between budget and current account deficits. However, such evidence generally suffers from endogeneity problems due to reverse causality, thereby making it difficult to provide solid evidence to support policy implementation. We use extensive cross-national panel data from developed and developing countries and military expenditure as an instrumental variable to reexamine the impact of budget deficits on the current account and test the validity of the twin deficit hypothesis. Our results demonstrate that budget deficits lead to current account deficits in both developed and developing countries, supporting the twin deficit hypothesis. After considering various factors that may affect the exogeneity of military expenditures, approximating the instrumental variable as exogenous, and performing multiple robustness tests, the hypothesis still holds. This study provides solid evidence supporting the use of fiscal policies to deal with current account imbalances.

The impact of alcohol consumption on economic growth in Thailand

The nighttime economy has always been an important part of tourism in Thailand. The alcohol industry contends that lifting alcohol restrictions will promote tourism and, consequently, generate additional income. Endogenous Growth Theory, however, emphasizes on investing in human capital, innovation, and knowledge as the most important factors that affect economic growth for a nation. Alcohol consumption incurs opportunity costs, as households lose financial resources and time that could be invested in children’s development. Relaxing control measures to promote alcohol consumption should impede economic development by diminishing the quality of human resources. The paper, therefore, aims to estimate the impact of alcohol consumption on economic growth by using 1990–2019 annual data from Thailand. By adopting Autoregressive Distributed Lag (ARDL) approach, the results reveal that alcohol consumption has significant and negative effects on economic growth in the long run. The statistic tests demonstrate no presence of serial correlation, heteroskedasticity, as well as, endogeneity problems. The finding has been corroborated in international studies, in which alcohol consumption contributes to substantial social and economic costs of the society.

The Impact of Financial Inclusion on Household Incomes in China: An Empirical Study

Financial inclusion is considered one of the important determinants for improving the incomes of households. This research analysis is to estimate the impact of financial inclusion on household incomes in China. The data was obtained from China Household Financial Survey (CHFS) for the year 2017. This paper measures financial inclusion through its four dimensions, namely formal account, formal saving, formal credit, and formal insurance, based on the definition of financial inclusion by the World Bank, 2017. Three different econometric techniques, namely Ordinary Least Squares, Quantile Regressions, and Instrumental variable methods, are used to empirically test the influence of inclusive finance on income in China. The instrumental-variable method was used to cope with the problem of endogeneity. The results of this research showed a significant relationship between households’ incomes and formal accounts, formal savings, formal credit, and formal insurance in China. This study found that the main driver of household income is financial inclusion, as these two are positively correlated. The main determinants of financial inclusion are significant variables for households’ incomes in China. Thus, this study concluded that financial inclusion helps to reduce income inequality. Hence, this research work recommended that policymakers in China should devise such policies to further improve the status of financial inclusion, ensuring a reduction in income inequalities.

Do gender diversity and foreign investor affect sustainability disclosure

AbstractWe examine the effect of female board members and foreign institutional investors on corporate social responsibility (sustainability) disclosure in Indonesian listed firms from 2015 to 2017. Our final sample comprised 1192 firm‐year observations. We apply ordinary least squares pool regression to estimate the associations and address the endogeneity problem using the two‐stage least squares model, generalized method of moments, and lagged variables. While previous studies have focused on the impact of female board members and foreign institutional investors on financial outcomes, we extend the literature by investigating the association between both female board members and foreign investors and sustainable disclosure in Indonesia, where the participation of women is nominal, especially at the top management level, and the level of foreign ownership is high. Our findings propose a proportion of women as board members for listed firms and promote attractive policies to increase the number of foreign investors investing in Indonesia. It also contributes to conflicting results regarding the relationship between corporate governance and corporate social responsibility (CSR) commitment. Our results were robust after testing for endogeneity and adding more control variables. Overall, the findings have practical implications for policymakers and investors regarding corporate disclosure and governance in Indonesia.