Generalized Method Of Moments Research Articles

Impact of social welfare finance on institutional financial performance: Cross-country evidence

This study explores the nuanced impact of social welfare finance on institutional financial performance, focusing solely on its direct effects. Utilizing fixed effect, feasible generalized, and quantitative approaches alongside the dynamic generalized method of moments (GMM), we conduct a thorough analysis using data from 20 upper-middle-income economies spanning 2000–2023. Our findings highlight the pivotal role of social welfare finance, including its dynamic and lagged impacts, as a significant determinant of institutional financial performance. Quantile analysis reveals varying effects across different quantiles, enriching our understanding. The results emphasize the direct influence of social welfare finance and unveil its indirect impact through Corporate Social Responsibility (CSR), a novel contribution to the literature. Moreover, we stress the critical importance of reasonable resource allocation, highlighting the indispensable role of social welfare finance resources. We advocate for prioritizing public-private partnerships to optimize financial targeting, offering a pragmatic strategy for fostering a resilient financial economy.

How does governance quality affect the shadow economy-sustainable development nexus? New insights from a dynamic threshold analysis

Purpose The purpose of this study is to assess the impact of the shadow economy on three sustainable development indicators while considering the moderating effect of the governance quality, and to highlight the non-linearity of the considered relationship.Design/methodology/approach A sample of 82 countries covering the period from 1996 to 2017. The dynamic first-differenced generalized method of moments (FD-GMM) panel threshold model is implemented to control for non-linearity.Findings The shadow economy hinders sustainable development in countries with low-governance quality, while the opposite result holds in countries with high-governance quality. The critical thresholds triggering the switch from one regime to another vary across the sustainable development indicators. Boosting growth requires enhancing the legal system and the economic dimension of governance, while promoting environmental quality requires the implementation and enforcement of specific environment-friendly regulations.Originality/value The study addresses non-linearity and the moderating effect of governance quality. The use of six governance indicators allows to gauge the ability of each governance dimension to curb the negative effects of the shadow economy. Considering the three objectives of sustainable development allows to identify specific policy recommendations for each of them.

THE MODERATING ROLE OF IFRS ADOPTION SPEED IN THE RELATIONSHIP BETWEEN CAPITAL INFLOWS AND INCLUSIVE GROWTH IN SUB-SAHARAN AFRICA

Purpose: This study investigates how the speed of International Financial Reporting Standards (IFRS) adoption condition the capital inflows and inclusive growth nexus in Sub-Saharan Africa. While existing literature primarily examined IFRS impacts at the firm level, this study filles a significant gap by focusing on the macroeconomic effects of IFRS adoption speed, particularly its role in enhancing the benefits of capital inflows such as Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), and Foreign Aid. Methods: This study employs a dynamic panel data analysis using the Generalized Method of Moments (GMM) to examine how the speed of IFRS adoption impacts capital inflows and fosters inclusive growth across Sub-Saharan African countries. The study leveraged a dataset spanning from 2005 to 2019, covering 48 countries in the region. By analysing the relationship between IFRS adoption speed, capital inflows, and inclusive growth, the study offers new insights into the macroeconomic benefits of adopting IFRS. Findings: Findings suggest that speedy IFRS adoption significantly enhances the positive impact of capital inflows on inclusive growth, underlining the importance of swift and effective implementation of IFRS for equitable economic development. Implications: This study contributes to the existing literature by providing a macroeconomic perspective on IFRS adoption and highlighting the importance of financial reporting standards in achieving inclusive growth in Sub-Saharan Africa. Originality: This study introduces a novel approach by examining how the speed of International Financial Reporting Standards (IFRS) adoption moderates the impact of capital inflows on inclusive growth in Sub-Saharan Africa. Bridging the gap in existing literature, it shifts the focus from firm-level effects of IFRS and direct impacts of capital inflows on economic growth to a nuanced exploration of how financial reporting standards' adoption speed can enhance a country's ability to utilize foreign investments for inclusive economic development. Unique in its regional focus, this research provides critical insights into the macroeconomic benefits of IFRS in Sub-Saharan Africa, offering valuable implications for policymakers and contributing significantly to the discourse on financial innovation, regulatory frameworks, and sustainable economic growth in emerging markets.

Financial inclusion and the informal sector

This paper explores the relationship between the informal sector and financial inclusion for a sample of 186 countries across the period 2004–2018 by using various methods of estimations—ordinary least squares, instrumental variables, fixed effects, and general method of moments. The results show financial inclusion significantly reduces the size of the shadow economy throughout indicators of access and usage of financial services. The results are also robust when controlling by income level, these results strongly support the use of financial inclusion as an effective vehicle to lessen informality. Our policy recommendations are directed towards improving financial infrastructure and fostering inclusive financial environments to effectively decrease informality. Adopting dynamic, long-term strategies to sustain financial inclusiveness is key to achieving lasting reductions in the informal sector.

Fintech and banking: friends or foes? Evidence from bank–fintech cooperation

PurposeThe financial system has witnessed the substantial growth of financial technology (fintech) firms. One of the strategies that banks have adopted to cope with this emergence is to cooperate with fintech firms. This study empirically investigated whether cooperation between banks and fintech companies would improve banks’ risk-adjusted returns.Design/methodology/approachWe developed a novel index of bank–fintech cooperation across various fintech sectors. A system generalized method of moments (GMM) was used to examine this relationship using a sample of Vietnamese banks from 2007 to 2019.FindingsThe findings show that the diversity of bank–fintech cooperation across seven sectors tends to enhance banks’ risk-adjusted returns. The results also highlight that this relationship may depend on the types of fintech sectors and bank ownership. More specifically, the positive association between this cooperation and banks’ risk-adjusted returns only holds in the comparison sector of fintech, whereas there is a negative relationship between them in the payments and mobile wallets sector. Furthermore, state-owned commercial banks that engage in more bank–fintech cooperation tend to generate greater earnings. If we look at listed banks, the positive effect of bank–fintech partnerships on risk-adjusted returns still holds. A similar result was also found in the case of large banks.Practical implicationsOur empirical evidence provides motivations for incumbent banks to implement appropriate strategies toward diversity in bank–fintech partnerships when fintech firms have engaged in various financial segments.Originality/valueThis study adds more evidence to the existing literature on the relationship between bank–fintech cooperation and bank performance.

Does internationalization and board diversity affect family firms' sustainable performance? Empirical evidence from an emerging economy

AbstractThe purpose of this study is to examine the relation between internationalization and firm sustainable performance on a set of listed Indian family firms belonging to mid‐cap and large cap categories and listed on NIFTY 500. This paper aims to explore the heterogeneity among internationalization and a set of defined variables, namely, female representation on the board, firm size, firm age, industry type, leverage, corporate social responsibility (CSR) and the number of female executives in influencing the firm performance. We aim to incorporate corporate governance, the factors influencing decisions related to it and gender diversity in understanding the relationship between internationalization and firm performance in the context of Indian family firms. The Generalized Method of Moments (GMM) and panel data regression models are both used in the study's empirical methodology. In order to examine the relationship between internationalization, as indicated by the percentage of foreign ownership, and family firm performance, as indicated by Return on Equity (ROE), the study uses the data from 2014 to 2023 for analysis, totaling 16,586 firm‐year observations. The findings indicate that internationalization, measured in this study by the investments the companies make abroad, positively affects the performance of the family firms. Age, women on board and number of female executives are seen to have positive associations with the performance of family firms. However, it is seen that firm size for family firms negatively impacts the performance while CSR and leverage seem to have no significant impact.

Sustainable entrepreneurship: A catalyst for unemployment reduction and economic growth in Anglophone and Francophone countries

AbstractThe purpose of the study is in two fold. First, the study examines the impact of language, history, and culture in Anglophone and Francophone countries on the rate of unemployment and economic growth. Second, the study explores the extent to which sustainable entrepreneurship influences the rate of unemployment, and economic growth in Anglophone and Francophone (A&F) countries. The study employed a descriptive and quantitative research design where a longitudinal data were sourced from the World Development Indicators and World Bank Entrepreneurship databases on 12 and 9 Francophone and Anglophone countries respectively. The random effect and the generalized method of moments (GMM) regression models were employed to attain the objectives of the study. The findings of the study revealed that there is a significant negative effect of sustainable entrepreneurship on unemployment; sustainable entrepreneurship has a positive significant effect on economic growth; and also, history and culture were found to have a significant impact on unemployment reduction and economic growth. However, language was found to have an insignificant influence between A&F countries suggesting that the ability of sustainable entrepreneurship to minimize the rate of unemployment and boost economic growth is generic irrespective of linguistic factors.

Exploring the connections: Dividend announcements, stock market returns, and major sporting events

AbstractThis study conducts a detailed investigation into the interplay between major sporting events, specifically the ICC Cricket World Cups and FIFA Football World Cups, and their potential impact on the relationship between dividend announcements and stock market returns. Beyond the customary exploration of investor sentiment and its connection to stock market returns, our research thoroughly examines the effects of these significant sports events on the stock market's reaction to dividend announcements. Drawing on extensive FTSE 350 index data spanning January 1990 to December 2021, we employ event study methodology as the primary analytical framework. To bolster the reliability of our findings, we apply the Generalized Method of Moments (GMM) estimation method, addressing potential endogeneity concerns. Our results uncover a distinct pattern—the stock market exhibits a less favourable response to dividend increases announced following England's victories in major sporting events, such as the FIFA Football World Cup and ICC Cricket World Cup, compared to instances where they faced defeat. Additionally, we observe a more negative market response to dividend decreases announced following England's losses in these pivotal sporting events, as opposed to England emerging victorious in these key contests. This research contributes valuable insights into the intricate relationship between sports passion and market dynamics, offering implications for both scholarly discourse and investment strategy formulation.

Environmental taxation and inclusive green growth in developing countries: does the quality of institutions matter?

The promotion of inclusive green growth is one of the most debated topics in international forums and is considered a major concern by all countries in the world. Although the existing literature has examined several determinants of inclusive green growth, the impact of environmental taxation on inclusive green growth is relatively little explored. This study is therefore the first attempt to examine the impact of the environmental tax on inclusive green growth for developing countries from 2000 to 2021. To do this, we apply the system generalised method of moments (GMM) that controls unobserved heterogeneity, heteroskedasticity, simultaneity, reverse causality and endogeneity. The empirical results show that environmental tax promotes inclusive green growth. In addition, our results indicate that the control of corruption, government efficiency, the quality of regulation and the rule of law interact with the environmental tax to promote inclusive green growth. Furthermore, this study reveals interestingly that the environmental tax has a positive impact on the two components of inclusive growth and green growth, but the institutional factors that accentuate the impact of the environmental tax are somewhat nuanced. The results of the study have important policy implications for decision-makers in developing countries in promoting inclusive and environmentally friendly growth.

Do foreign direct investment inflows affect tax revenue in developed and developing countries?

PurposeThis study aims to examine the effect of foreign direct investment (FDI) inflows on tax revenue in 34 developed and developing countries from 2006 to 2020.Design/methodology/approachFeasible generalised least squares (FGLS), a dynamic panel of a two-step system generalised method of moments (GMM) system and a pool mean group (PMG) panel autoregressive distributed lag (ARDL) approach were used to compare the developed and developing countries. Basic estimators were used as pre-estimators and diagnostic tests were used to increase robustness.FindingsThe FGLS, a two-step system of GMM, PMG–ARDL estimator’s results showed that there was a significant negative long and positive short-term in most countries relationship between FDI inflows and tax revenue in developed countries. This study concluded that attracting investments can improve the quality of institutions despite high tax rates, leading to low tax revenue. Meanwhile, there was a significant positive long and negative short-term relationship between FDI inflows and tax revenue in the developing countries. The developing countries sought to attract FDI that could be used to create job opportunities and transfer technology to simultaneously develop infrastructure and impose a tax policy that would achieve high tax revenue.Originality/valueThe present study sheds light on the effect of FDI on tax revenue and compares developed and developing countries through the design and implementation of policies to create jobs, transfer technology and attain economic growth in order to assure foreign investors that they would gain continuous high profits from their investments.

Examining the link between tax revenue mobilization efforts and capital flight in African countries

ABSTRACT This article examines the impact of tax revenue mobilization on capital flight in 30 African countries, focusing on the role of natural resources. Over the period 1998–2018, econometric analysis based on dynamic generalized method of moments suggests that tax revenue mobilization reduces capital flight in Africa. However, when countries have more natural or oil resources, the negative impact of tax revenues on capital flight weakens. Therefore, despite the importance of the benefits associated with natural resource wealth (in particular, oil wealth), the latter compromises the impact of tax revenue mobilization on stemming capital flight. Finally, greater responsibility in the management of natural resources and more transparent reporting by companies operating in this sector are needed.

Effectiveness of public health spending in Sub-Saharan Africa: The moderating role of health system efficiency

ABSTRACT Public health spending (PHS) has been extensively investigated concerning population health outcomes (PHO), but its effectiveness has been less analysed. To this end, this study examines the association between domestic general government health expenditure (DGGHE) and PHO in terms of disability-adjusted life year (DALY) while testing the role of health system efficiency (HSE) in its effects. The under-five mortality(U5MR) is also used in the analysis to assess the effectiveness of services. The study uses publicly available data from 2008 to 2018 across forty-three countries in SSA and applies the GMM estimator based on linear and nonlinear moment conditions. The findings indicate that an increase in DGGHE was significantly associated with a decrease in DALY and U5MR, with the lowest decrease in countries with the lowest HSE scores. Therefore, the study urges governments in SSA countries to consider mechanisms that enhance health system efficiency while planning interventions based on increased spending on health.

Nonlinear Spatial Dynamic Panel Data Models with Endogenous Dominant Units: An Application to Share Data

This article develops a nonlinear spatial dynamic panel data model with one particularly interesting application to a structural interaction model for share data. To account for effects from dominant (popular) units, the spatial weights matrix in our model can allow for unbounded column sums. To account for heterogeneity, our model includes two-way fixed effects and heteroscedastic errors. We further consider the potential endogeneity of the spatial weight matrix constructed from socioeconomic distance. We investigate the quasi-maximum likelihood estimator (QMLE), generalized methods of moments estimator (GMME), and root estimator (RTE), and establish their consistency and asymptotic normality based on the near epoch dependence (NED) framework. The RTE can derive a relatively computationally simple and closed-form solution without evaluating the QMLE’s Jacobian matrix as well as the iterations by GMME. We consider both n , T → ∞ , and the strength of the dominant units is equal to 1 when T → ∞ . For the purpose of empirical analysis, we derive the marginal effects and their limiting distributions based on the proposed estimators. In an empirical application, we apply our model to China’s prefecture city-level data, revealing significant spillover effects of the tertiary industry share. These findings suggest that the development of the tertiary sector in large cities can foster its growth in small cities.

Bank performance and financial stability during the COVID-19 pandemic: lessons from the MENA region

PurposeThis study investigates the role of market concentration and efficiency in banking system stability during the COVID-19 pandemic. We empirically test the hypothesis that market concentration and efficiency are significant determinants of bank performance and stability during the time of crises, using a sample of 575 banks in 20 countries in the Middle East and North Africa (MENA).Design/methodology/approachThe main sources of bank data are the BankScope and BankFocus (Bureau van Dijk) databases, World Bank development indicators, and official websites of banks in MENA countries. This study combined descriptive and analytical approaches. We utilize a panel dataset and adopt panel data econometric techniques such as fixed/random effects and the Generalized Method of Moments (GMM) estimator.FindingsThe results reveal that market concentration negatively affects bank profitability, whereas improved efficiency further enhances bank performance and contributes to the banking sector’s overall stability. Furthermore, our analysis indicates that during the COVID-19 pandemic, bank stability strongly depended on the level of market concentration, but not on bank efficiency. However, more efficient banks are more profitable and stable if the banking institutions are Islamic. Similarly, Islamic banks with the same level of efficiency demonstrated better overall financial performance during the pandemic than their conventional peers did.Research limitations/implicationsThe main limitation is related to the period of COVID-19 pandemic that was covered in this paper (2020–2021). Therefore, further investigation of the COVID-19 effects on bank profitability and risk will require an extended period of the pandemic crisis, including 2022.Practical implicationsThis study provides information that will enable bank managers and policymakers in MENA countries to assess the growing impact of market concentration and efficiency on the banking sector stability. It also helps them in formulating suitable strategies to mitigate the adverse consequences of the COVID-19 pandemic. Our recommendations are useful guides for policymakers and regulators in countries where Islamic and conventional banking systems co-exist and compete, based on different business models and risk management practices.Originality/valueThe authors contribute to the banking stability literature by investigating the role of market concentration and efficiency as the main determinants of bank performance and stability during the COVID-19 pandemic. This study is the first to analyze banking sector stability in the MENA region, using both individual and risk-adjusted aggregated performance measures.

Does board knowledge matter for ESG performance in the European banking industry?

AbstractThis study investigates the influence of the knowledge endowment of directors on the environmental, social, and governance (ESG) performance in the banking industry. Applying the generalized method of moments (GMM) two‐step analysis, we analyzed a sample of 115 banks listed in Europe between 2014 and 2022. Building on the Resource Based View and Resource Dependence Theory, we find empirical evidence that board knowledge in terms of cultural, industrial, and financial background affects ESG performance in the banking industry, providing several contributions to the extant knowledge management and corporate governance literature. The research is intended to stimulate the development of practical knowledge management strategies inside companies to improve directors' decision‐making toward corporate social responsibility‐oriented initiatives.

The effect of renewable energy aid and governance quality on environmental tax effort in Sub-Saharan Africa

The literature on foreign aid and tax efforts largely overlooks the specific role of environmental aid and taxation. To fill this gap, we examine the effects of renewable energy development assistance (EDA) and governance quality on climate change tax effort, air pollution tax effort, and aggregate environmental tax effort in Sub-Saharan Africa (SSA). Utilizing panel data from 15 SSA countries over 20 years (2000–2019), the sample is divided into two groups based on income levels: seven low-income countries (LIC) and eight middle-income countries (MIC). The instrumental variable generalized method of moments (IV-GMM) regression technique is employed to estimate the parameters of the baseline model specifications. The study also uses the Smoothed Instrumental Variable Quantile Regression (SIVQR) technique to test the robustness of the baseline model. Among middle-income SSA countries, the findings suggest that renewable energy aid inflows reduce climate change tax efforts but increase air pollution and aggregate environmental tax efforts. However, among low-income SSA countries, renewable energy aid negatively impacts all three categories of environmental tax efforts. Governance quality tends to enhance all three categories of environmental tax effort in both low-income and middle-income SSA countries. The implications of these results are discussed.

Effect of Entrepreneurship on Urban-Rural Income Inequality in China

ABSTRACT Entrepreneurship is a two-edged sword, promoting economic mobility for some but potentially leading others into poverty. This research explores the effect of entrepreneurship on urban-rural income disparity in China, utilizing data collected in 265 Chinese cities from 2013 to 2019. Using a two-step System Generalized Method of Moments (GMM) for dynamic panel data, we found that entrepreneurship consistently reduces income inequality across various income levels in different digitalization environments. The findings underscore the significance of entrepreneurship in narrowing the disparity in income between urban and rural areas. Policies would be adaptable to the challenges and opportunities in different locations, with the goal of creating a favorable climate for the growth of both urban and rural economies.

Re-investigating the Impact of Economic Growth, Energy Consumption, Financial Development, Institutional Quality, and Globalization on Environmental Degradation in OECD Countries

Abstract This study attempts to quantify various macroeconomic variables’ influences on environmental quality. Being significantly negative in character, the impacts of economic growth (EG), energy consumption (EC) levels, financial development (FD) tools, changes in institutional qualities (IQUs), and globalization (GLO) on environmental degradation are regarded worthy of research. The dynamic panel model reports robust results using quantile regression and generalized moment method approaches. Renewable EC, GLO, and IQU significantly reduce the negative impacts on the natural environment across all quantiles. In contrast, electricity consumption has a significant deleterious impact across all quantiles, except at the 95% level, where the impact is not detrimental. EG and FD produce significantly positive injurious effects on the environment across all quantiles. Our findings reveal that callous indifference to global environmental degradation should not be tolerated for economic and ethical reasons, and it falls on the OECD countries to show leadership and take the initiative. OECD countries can mitigate environmental degradation by sharing knowledge and experience of balancing growth to promote sustainable development and responsible consumption globally.

Remittance inflows in a digital economy: A Sub-Saharan African experience

The undeniable importance of migrants’ remittances to the welfare of developing countries was again demonstrated during the COVID-19 pandemic. This has therefore led to a significant shift in attention to the relevance of remittances and has likewise spurred research interest in factors that motivate the inflows of remittances. However, in spite of the increasing recognition of the roles of digital technology in the macroeconomic performance of developed and developing economies alike, empirical analysis of its possible impacts on remittance inflows has not been well explored in the literature. Therefore, pooling the annual data of 35 sub-Saharan African (SSA) countries from 2011 to 2020, this study investigates the nexus between digital technology and remittance inflows within the generalized method of moments (GMM) framework. Using two measures of digital technology infrastructure—internet usage and mobile cellular subscription—the study finds a positive relationship between digital technology and remittances inflow. In addition, the findings indicate that the magnitude of the effect is relatively higher for internet usage. The study thus shows that the increased rate of remittance mobilization constitutes a significant pathway through which digital technology impacts the economies of the SSA region. Moreover, it offers further insight on the importance of digital technology in the socioeconomic development of developing countries. From a policy standpoint, governments and policymakers in SSA countries should intensify efforts to promote the diffusion and penetration of digital infrastructure.

Gender economic inclusion, governance institutions and economic complexity in Africa

AbstractThis study examines the effects of gender economic inclusion on economic complexity in Africa, as well as the moderating role of governance institutions on the relationship between gender inclusion and economic complexity. The analysis was based on the pooled OLS and the system generalized method of moments (GMM) estimation techniques, with data from 34 African economies between 2010 and 2021. The analysis uncovered several important findings. First, from the most robust model (i.e., GMM), positive synergies are apparent because gender economic inclusion promotes economic complexity, and governance dynamics further enhance the positive effect of gender economic inclusion on economic complexity. Second, regardless of the adopted technique, a predominantly positive and statistically significant relationship was identified between gender economic inclusion and economic complexity. Third, it was observed that while governance institutions exhibit a negative relationship with economic complexity, they play a positive role in moderating the relationship between gender inclusion and economic complexity. Fourth, factors such as foreign direct investment inflow, trade openness, and international tourism were identified as potent drivers of economic complexity in Africa, while the impact of human capital appears to be relatively subdued. Consequently, the study emphasizes the need for institutional reforms to improve governance transparency, accountability, and efficiency, alongside advocating for gender‐inclusive policies and increased investment in education.