Exogenous Shocks Research Articles

Regional analysis of agricultural bank liquidity

PurposeThe purpose of this article is to determine the regional economic factors and bank characteristics that significantly contribute to changes in bank liquidity. We also seek to identify regions that may be most susceptible to liquidity tightening.Design/methodology/approachFor this article we use data on deposits from commercial banks, Federal Reserve survey data and indicators of regional and agricultural economic conditions. We specify a panel regression with fixed effects to model how liquidity at agricultural banks has changed and to identify the most significant drivers.FindingsOur results suggest that small banks and banks with branch networks located in areas more concentrated in agricultural production bear the greatest risk of reduced liquidity.Practical implicationsPrior to the pandemic and more recently, lower deposit growth, combined with strong demand for agricultural loans, has led to reductions in liquidity at agricultural banks. Lower liquidity could reduce credit availability for farm borrowers and increase risks for banks that must rely on alternative sources of funding to meet loan demand.Originality/valuePrevious research has shown that exogenous shocks from other economic sectors, such as energy, can significantly affect bank liquidity, but research is limited on how agricultural bank liquidity is affected by downturns in the agricultural economy and other regional economic factors. Another contribution is this paper’s analysis of regional disparities in bank liquidity.

Time-varying relatedness and structural changes among green growth, clean energy innovation, and carbon market amid exogenous shocks: A quantile VAR approach

Green growth has become a critical driver in sustainability science. However, attaining a steady state of green growth can be challenging in the face of exogenous economic shocks. As such, this study assesses the time-varying relatedness among the USA's green economy (OMXGE), carbon markets (CCAI), green energy (ECO), natural resource markets (SPNGR), and sustainability index (DJS) considering multiple economic traumatism (i.e., the Brexit, COVID-19, Russia-Ukraine conflict). By deploying the quantile VAR (QVAR) and “Wavelet Local Multiple Correlations (WLMC)” approaches, we find: 1) Without the quantile effect, we note strong total interconnectedness among the designated series, which is close to 93 %. 2) From the QVAR findings, we note a high shock-receiving tendency in ECO and CCAI during the Brexit referendum, the first wave of COVID-19, and the Ukraine-Russia conflict, making these markets attractive for further investment during turbulent times. 3) DJS and OMXGE are temporary shock receivers and predominant shock transmitters, indicating that the green economy and sustainability indicators are not robust enough to absorb shocks during economic shocks. 4) Wavelet coherence findings further validate that the green economy is not a safe haven asset, whereas the carbon market has a strong shock absorption capacity and can provide strong hedging support. The underlying findings reveal that Washington's policy toward a renewable-based equity market should be more liberal to ramp up investment in renewables.

Majority-of-the-minority shareholder votes and investment efficiency

In an environment where concentrated share ownership is the norm, we ask whether Majority-of-the-Minority (MoM) votes curb controlling shareholder overreach and investment inefficiency. We consider MoM votes on controller-based related party transactions in China. Such votes give minority parties potential veto power. We report strong association between shareholder disapprovals on controller-based investment related MoM proposals and the underlying entity's investment plans. This association is robust to a battery of tests, including assessment of pre-vote consultation between minority and controlling shareholders and an exogenous regulatory shock. We also report increased likelihood of informal securities enforcements in the year following MoM shareholder disapproval.

Partisan bias in securities enforcement

Abstract In this article, I present a partisan theory of agency enforcement and empirically investigate the possibility of partisan bias in the enforcement of the federal securities laws. Leveraging plausibly exogenous shocks to partisan control of the U.S. Securities and Exchange Commission (SEC), I find evidence that a firm’s partisan alignment with the SEC substantially reduces the likelihood of enforcement. For a firm that is ex ante equally likely to be targeted for enforcement or not, my estimates indicate that a typical increase in partisan alignment following a change in party control of the SEC reduces the likelihood of enforcement by over 19%. Partisan alignment also appears to reduce aggregate monetary sanctions, though these estimates are less certain. By contrast, I find little evidence of partisan bias in the initial opening of investigations. These findings suggest there may be meaningful partisan bias in SEC enforcement and have important implications for democratic governance. (JEL D73, K22, K23, K41, K42, P00)

Public's evaluation of ESG and credit default swap: Evidence from East Asian countries

We investigate whether investors' sentiment on environmental, social, and governance (ESG) factors negatively affects a firm's spread for credit default swaps (CDS) in East Asian countries. We use the Kyoto Protocol as an exogenous shock to public sentiment on ESG and observe that it strengthens the negative influence of that sentiment on CDS spreads. Furthermore, we find consistent results on the discrepancy in CDS spreads between firms and their respective countries, as well as the term structure of the spreads. Our findings demonstrate that the public's perception of ESG can reduce investors' concerns about firms' credit risk.

The effects of long–distance power transmission on employment growth: Empirical evidence from ultra–high voltage projects of China

Long–distance power transmission is a crucial solution for alleviating the uneven distribution of energy and promoting economic development. This work is the first to provide an estimate of the benefits to employment of long–distance power transmission. Using unique data from the China National Tax Survey Database for the years 2007–2016, we utilized ultra–high voltage (UHV) project of China as an exogenous shock to investigate how long–distance power transmission affects firms' labor demand by employing the difference–in–differences method. We found that the UHV system significantly increased firms' labor demand. A mechanism analysis suggested that the UHV system did this mainly by facilitating firm entry and expanding firm production scale. A heterogeneity analysis indicated that, compared with provinces with low grid reliability and grid capacity, firms in provinces with high grid reliability and grid capacity exhibited a stronger response to the UHV system in terms of labor demand. Our research findings provide a new solution for countries to balance resource distribution, energy transition, and employment growth.

Exogenous Increases in Basic Income Provisions Increase Preventive Health-Seeking Behavior: A Quasi-Experimental Study

IntroductionUniversal Basic Income (UBI) policies have the potential to promote a wide range of public health objectives by providing those who qualify with direct cash payments. One overlooked mechanism of particular importance to health researchers is the possibility that guaranteed income might increase consultation of primary and preventive care (e.g., annual doctors’ visits; regular vaccination against infectious disease) by providing people with both the time and monetary resources to do so, thereby improving general health. MethodsThis study assesses the effects of an exogenous shock to Alaska's UBI payments to all state residents: a 2022 decision to reclassify dividend “energy relief” provisions as non-taxable (thereby increasing payments by approximately $2,000 inflation-adjusted dollars). It estimates quasi- experimental treatment effects (in 2022 vs. 2021) via mixed linear probability models that compare pre/post policy change in primary care seeking behavior in Alaska vs. the US adult population; controlling for respondent-level fixed effects and state-level random effects. Data were collected in 2021-2022, and analyzed in 2024. ResultsThe likelihood that Alaskans sought primary care post-reform (relative to beforehand) increased by 6pp, which was significantly greater than the same difference (2pp) observed across all other (non- UBI) US States (∆ = 4pp, p < 0.01). The study provides suggestive evidence that comparatively fewer Alaskans had difficulty affording primary care during this period, with less-consistent evidence of increased flu vaccine uptake. ConclusionsEnhanced UBI payments ought to be thought about as a form of health policy, as they have the potential to advance a wide range of health objectives related to preventive care.

Testing the algebraic modeling of competitive impacts from wage premium shocks: a case study from a booming airline market

Labor relations issues such as collective bargaining and strike threat power have recently gained increased attention in the Brazilian air transportation market due to a short-term shortage of qualified workforce, leading stronger pilot unions to demand higher wages and better working conditions. Exacerbated by the notable expansion of the Brazilian economy between 2020 and 2023, where air travel demand surged by 60%, this pressure has driven labor costs to grow more rapidly than other cost categories. This paper examines exogenous flight crew cost shocks, treating these as increases in wage premiums resulting from stronger unionization and higher labor market rents. Using a differentiated duopoly model, we analyze the impact of these wage increases on competition between a major network carrier and a small low-fare carrier, introducing the hypothesis of non-exhausted economies of density. Our findings indicate that smaller airlines are more adversely affected by labor cost shocks, though differentiated wage increase schemes can mitigate these impacts, reducing market concentration and preserving consumer welfare. This study contributes to the literature by incorporating wage premium shocks into existing models and suggesting that labor regulations in Brazil should be liberalized to address the rapid growth in air transportation demand and the resultant workforce shortage.

Ecological footprint spillover effects in Europe: New insights from dynamic spatial panel data model with common shocks

This comprehensive study addresses the urgent global challenges of climate change and environmental degradation by focusing on the Ecological Footprint (EF). Unlike previous studies, it introduces a novel approach incorporating spatial spillover, temporal effects, and common shocks in panel data analysis. The spatial spillover effect highlights the influence of trade, pollution havens, and competition between neighboring countries on EF. The temporal effects emphasize the significance of historical production patterns and export strategies in shaping the current EF. The study also considers the impact of exogenous common shocks, such as international agreements and global events, on EF. Utilizing a dynamic spatial panel data model with common shocks, the research examines 40 European countries from 1992 to 2020, revealing the significant impact of biocapacity, energy consumption, industrialization, and globalization on EF. Findings indicate that spatial spillover effects contribute to EF transfer, emphasizing the need for collaborative global efforts. The study sheds light on the interconnectedness of environmental impacts and underscores the importance of considering both weak and strong forms of cross-sectional dependence in achieving accurate estimations. The research enriches our understanding of EF determinants and provides nuanced insights for policymakers striving to develop effective strategies for sustainable resource management and environmental conservation.

Financial Liberalization, Credit Market Dynamism, and Allocative Efficiency

AbstractWe investigate the effects of financial liberalization on the dynamism of the credit market. We measure interfirm credit reallocation in the U.S. states following a methodology akin to Davis and Haltiwanger (1992). We then exploit the staggered liberalization of the credit markets of the U.S. states to identify an exogenous shock to the credit reallocation process. The liberalization intensified credit reallocation in the states, even within narrowly defined groups of continuing firms, while leaving credit growth essentially unaltered. The results suggest that the increased credit market dynamism enhanced the allocation of funds to productive firms and total factor productivity growth.

Do major public emergencies affect audit quality? —Evidence from China

ABSTRACT Taking Chinese listed firms from 2019 to 2021 as research samples, we examine the impact of major public emergencies on audit quality using COVID-19 as exogenous shock. Distinguishing the location of audit clients and that of auditors, we find that if major public emergency occurs in the city of audit clients during the period of annual report audit, audit quality will be significantly reduced. If emergency occurs in auditor’s city, audit quality has improved instead of declining. Through the heterogeneity test, we find that the information level of audit clients has a double effect. When public emergencies in audit clients’ locality have a negative impact on audit quality, the information level of clients can alleviate the negative impact. However, when emergencies occur in auditor’s locality, the higher information level of the client may lower audit quality. However, whether public emergence occurs in the city of clients or auditors, auditing firms’ information technology level and more information technology personnel in auditors’ team are conducive to improve audit quality. The research has enriched the relevant research on audit quality in the context of public emergencies, and provided a theoretical basis for the urgency of digital transformation of accounting and auditing industry.

Preferences for Redistribution: Two Decades of Gender Gaps and Generational Differences in Europe

Abstract We provide a concise overview of the literature concerning the factors influencing preferences for redistribution, with particular attention to works that have integrated considerations of gender and/or cohort heterogeneity into their analyses. We then present a series of stylized facts on preferences for redistribution based on data from the European Social Survey for a wide array of European countries over the period spanning from 2002 to 2022. We document that, since 2002, the average preferences for redistribution have increased. While the gender gap has remained substantially unchanged, the generational gap has widened over time. Distinguishing women and men by a set of individual characteristics, instead, there exists a not negligible heterogeneity both ‘between’ and ‘within’ women and men. At the country level, the overall gender gap in preferences for redistribution increases as the country’s per capita income or gender equality increase. Conversely, the gender gap decreases in more income, unequal, and religious countries. Finally, looking at the two exogenous shocks, that is, the 2008 financial and economic crisis and the Covid-19 pandemic, we observe that average individual attitudes towards redistribution react to both events but in a surprisingly opposite way, with a relevant heterogeneity across different sub-groups of women and men.

Revisiting the stock market reactions to the private securities litigation against informational misconducts in China

The recently revised Securities Law in December 2019 and subsequent judicial interpretations issued by the Supreme People's Court (SPC) improved the efficiency of private securities litigation in China. Such a milestone legal reform is also reflected by Chinese courts awarding historically high amount of damages to aggrieved investors. These events are used as the sources of exogenous shocks to both de jure and de facto private enforcement intensity, and the stock market reactions to these events are examined. To control for potential self-selection bias, a sample of “culpable” listed companies is employed. Our sample companies react most significantly to the first game-changing court decision in “Wuyang Judgment”, in which the defendants were ordered to pay more than 1 billion damages. Such effects are observed in addition to the previous changes of “on-the-book” laws of private securities litigation. Finally, the magnitude of the estimated abnormal return is positively correlated with the local judiciary quality proxied by the percentage of cases disclosed, which suggests that the market expects that listed companies in regions with high-quality adjudication should be liable to pay higher damages.

Does corporate sustainability performance matter for cash holdings? International evidence

PurposeWe examine the impact of corporate sustainability performance (CSP) on corporate cash holdings, focusing on the moderating impacts of industry’s concentration, financial constraints, and institutional environments.Design/methodology/approachThe empirical analysis is conducted on a sample of 31 countries from 2002 to 2018. We use the pooled OLS regressions controlling for fixed effects. We further address endogeneity issues using an instrumental variable approach, the Difference-in-Differences regression based on an exogenous shock, and the propensity score matching.FindingsWe find that firms with superior CSP hold more cash. This result is valid after a series of tests for robustness and endogeneity issues, suggesting a causal effect of CSP on corporate cash holdings. In the cross section, the positive impact of CSP on cash holdings is more pronounced for firms operating in highly concentrated industries, but attenuated for firms with financial constraints and for those operating in countries with better institutional environments. We further show that CSP affects cash holdings through the channel of financial distress risk.Practical implicationsIn making investment decisions, investors should not only examine corporate financial performance and sustainability profile, but also understand the related cash holding levels and financial distress costs. Corporate managers making decisions on levels of cash holdings should pay more attention to their sustainability behavior, especially for firms operating in concentrated industries and/or facing financial constraints. Governments and authorities can apply regulations to encourage firms to engage more in sustainable activities, as well as establish good institutional environments in the country.Originality/valueUsing a comprehensive international dataset, our paper contributes to two strands of literature: the economic impact of CSP and the driver of cash holdings. We further focus on the moderating role of industry concentration and firms’ financial constraints. Our international sample also allows us to exploit the effect of country-level informal institutions.

The impact of digitalization on promoting business during crisis: evidence from Armenian SMEs

Purpose This paper aims to analyze the factors that affect the attitudes of Armenian small and medium enterprises (SMEs) regarding digitalization, examining whether they view it as a tool to foster innovation and business growth, while also assessing the extent to which digitalization mitigated the negative impacts of the COVID-19 crisis. Design/methodology/approach The empirical approach is based on data collected from 452 Armenian SMEs, which were further analyzed using SPSS Statistics 23.0 software. Scales for assessing the COVID-19 impact, innovation and digitalization were constructed and validated. To test five hypotheses, binomial logistic regression was conducted to appraise the importance of digitalization for Armenian SMEs, including the ability to mitigate the consequences of the recent COVID-19 pandemic. Findings The results of the analysis showed that the economic sector plays a significant role in forming the expectations of firms on the positive impact of digitalization, while the company size does not affect them. This paper found that the provision of online services before the pandemic did not help Armenian SMEs to be less affected by the crisis. Furthermore, the perception of whether digitalization facilitated innovative processes, products and services did not depend on the degree of being affected by COVID-19. Finally, the findings indicate that the more agile companies which had the ability to convert their business model into an e-business model were less affected by the crisis. Originality/value This paper contributes to the literature by studying the effect of digitalization on SMEs, as well as how SMEs in small developing countries like Armenia mitigated the negative effects of the COVID-19 pandemic. The current work is unique as, to the best of the authors’ knowledge, there are no prior empirical studies focusing on impact of digitalization and innovation induced by exogenous shocks in an under-researched country like Armenia.

Fly the unfriendly skies: The role of transport costs in gravity models of trade

We exploit exogenous shocks to flight distances over time to estimate the distance effect in airborne trade within panel regressions. We find a negative distance effect, which we interpret as evidence of a link between transportation costs and airborne trade. Notably, this relationship is driven almost entirely by changes at the extensive margin. Specifically, trade in HS 6 product categories with intermittent trading histories becomes dormant when flight distances increase. Conversely, the intensive margin of trade remains largely unaffected.

Does SASAC boost the innovation of state-owned enterprises?

This study examines the causal effect of government monitoring on the innovation of state-owned enterprises (SOEs). By exploiting an exogenous shock to SOEs caused by the establishment of the State-owned Assets Supervision and Administration Commission (SASAC) in 2003, our difference-in-differences estimates show that government monitoring effectively promotes SOEs' innovation, and this positive innovation-driven effect becomes more prominent in SOEs with lower initial governance quality, stronger policy intensity, and greater innovation intensity. Furthermore, the underlying mechanisms are that this reform helps reduce corporate policy burdens and improve management efficiency. In addition, government monitoring promotes SOEs' patent quality, resulting in enables better performance and higher productivity. Taken together, our findings suggest that government monitoring can be vital to SOEs' innovation activities.

An online review-based method for dealing with exogenous shocks in the hospitality industry

To provide hospitality managers with an effective way to respond to exogenous shocks, this study proposes a quantitative opportunity score algorithm based on the primary effect of psychology and the affect-as-information theory. The proposed algorithm can assist managers in prioritizing service improvements by calculating the importance and performance of restaurant service attributes. Specifically, using the COVID-19 pandemic as an example, this study explores shifts in the importance and performance of restaurant service attributes under different degrees of restrictions based on online reviews. The results of this study show that whether or not restaurants take measures to respond to the pandemic and the different degrees of restrictions have an impact on the importance and performance of service attributes, which means that managers develop eventual service improvement strategies differently. This study not only provides insights and management recommendations for hospitality managers to deal with the post-epidemic but also provides methodological support for hospitality managers to further respond to other exogenous shocks.

The Emission-Reduction Effect of Green Demand Preference in Carbon Market and Macro-Environmental Policy: A DSGE Approach

Along with the new stage of prevention and control of the COVID-19 pandemic and the vision and goals of combatting climate change, the challenges of the transition to a green economy have become more severe. The need for green recovery of the economy, stability and security of energy production and consumption, and the coordination of low-carbon transformation and socio-economic development has become increasingly urgent. This paper proposes a new theoretical framework to study the effect of carbon emission reduction on the mutual application of the carbon market, fiscal policy and monetary policy under the non-homothetic preference of energy product consumption. By constructing an environmental dynamic stochastic general equilibrium (E-DSGE) model with residents’ non-homothetic preferences, this paper finds that coordinating the carbon market and macroeconomic policies can achieve economic and environmental goals. However, the transmission paths for each are different. The carbon market influences producers’ abatement efforts and costs through carbon prices. Monetary policy controls carbon emissions by adjusting interest rates, while fiscal policy controls carbon emissions by adjusting total social demand. Improving non-homothetic preferences will amplify business cycle fluctuations caused by exogenous shocks, thus assuming the role of a “financial accelerator”. Further research shows that non-homothetic preferences influence the heterogeneity of different policy mixes. Finally, this paper discovers that the welfare effects, the relative size and difference of long-term and short-term effects resulting from the different policy mixes, also depend on the level of non-homothetic preferences. The intertemporal substitution mechanism due to the improvement of non-homothetic preferences endows low-carbon production with “option” characteristics. Our study reveals the role of non-homothetic preferences on the effectiveness of policy implementation. It highlights the importance of matching monetary and fiscal policies with the carbon market based on the consumption and production side. It provides ideas for policy practice to achieve the goal of “dual carbon” and promoting coordinated socio-economic development.

Product market competition and disclosure content differentiation: A topic modeling analysis

AbstractWe examine how product market competition affects firms’ disclosure content. Theory suggests that competition leads firms to strategically disclose to avoid proprietary costs; however, the empirical evidence has been mixed. We investigate whether firms manage disclosure content to protect proprietary information, a disclosure strategy under‐researched in the literature. We use a topic‐modeling technique to extract and compare thematic topics that industry peers disclose in management discussion and analysis (MD&amp;A) in 10‐K filings. Exploiting large reductions in US import tariff rates as an exogenous shock to product market competition, we find that firms differentiate disclosure topics in response. This effect is more pronounced when disclosures incur higher proprietary costs, as theoretically predicted, and stronger for firms with greater product similarity to industry peers and those with longer MD&amp;A disclosure texts.