Generalized Method Of Moments Research Articles

The Impact of Environmental Social Governance (ESG) on Firm Performance with the Moderating Role of CEO Turnover

This research aims to investigate the influence of Environmental, Social, and Governance (ESG) on firm performance, measured by Return on Equity (ROE). Additionally, the study explores the moderating role of CEO turnover in the relationship between ESG and firm performance in publicly listed companies on the Indonesia Stock Exchange, with a sample of 33 companies from 2016 to 2022. The GMM estimator method is employed to address endogeneity issues, ensuring consistent and unbiased estimation results. Findings indicate that overall ESG performance significantly affects firm performance, emphasizing the importance of implementing ESG principles in Indonesian businesses to enhance ROE. Other results reveal the pure moderating role of CEO turnover, weakening the relationship between ESG and firm performance. Therefore, proper planning and guidelines for CEO succession are crucial for improving firm performance and sustainability. The research results carry important implications for Indonesian companies to consider ESG implementation in their business strategies. Furthermore, CEO succession planning management is key to maximizing the positive impact of ESG on firm performance. This study contributes to a deeper understanding of how ESG factors influence firm performance in the Indonesian business context, highlighting the significance of executive leadership in managing these impacts.

Linder hypothesis and India’s services

This study examines the empirical validity of the Linder hypothesis for India’s service sector exports from 2005 to 2021, focusing on 35 major importing countries. We use a gravity model trade, applying Feasible Generalised Least Squares (FGLS) and two-step system generalised method of moments (GMM), incorporating country- and time-fixed effects. Our results confirm that the Linder hypothesis does not hold for Indian service exports, revealing an increase in trade intensity between countries with dissimilar income levels. The study finds that distance has a positive and significant impact on Indian service exports. Exchange rates have a negative and significant impact on India’s service exports, while the results for the RTA dummy variable are inconclusive. Sharing a common border, a common colony, and a language has a positive and significant effect on Indian service exports.

Does ICT Investment Affect Market Share and Customer Acquisition Cost? A Comparative Analysis of Domestic and Foreign Banks Operating in India

Competitive banks aggressively invest in information and communication technologies (ICT) to enhance their market share and reduce Customer Acquisition Costs (CAC). This study examines the impact of cumulative stock of ICT investment on (a) deposit and loan market share and (b) CAC of banks operating in India. The analysis uses a longitudinal dataset of 84 domestic and 70 foreign banks from 2000 to 2020, employing a two-step system Generalized Method of Moment (GMM). It is found that ICT investment adversely affects the market share of domestic banks, indicating a need for these banks to strategically invest more in CAC. Conversely, foreign banks are able to increase their market share through ICT investment and reduced CAC, thereby demonstrating greater efficiency in utilizing ICT. The study underscores the strategic importance of cumulative stock of ICT investment for banks. Nonetheless, it is emphasized that ICT investment must be complemented with innovative marketing strategies to enhance customer experience, reduce CAC, and increase market share. Overall, while foreign banks are able to leverage ICT to boost efficiency, domestic banks must leverage ICT to implement targeted marketing strategies and strive to enhance their customer service.

Do public governance and financial shocks effect public health? Empirical evidence from MENA region

Financial shocks have an incredible socioeconomic effect on both developed and developing countries. Various recent studies demonstrated that bad public governance impacted public health across all nations. In fact, this study aims to use panel data for 21 countries from the Middle East and North Africa (MENA) region over the period 2000–2020 to scrutinize the effect of both governance and financial crises on public health. We use the generalized method of moments (GMM) approach to carry out the empirical analysis. The objective of using this method is to deal with the issue of endogeneity between exogen variables. Results outline that there is a significant positive association between public governance indicators and public health. Moreover, we found a strong negative association between financial shocks and public health. Thus, the direct negative impact of financial crisis on public health could be mitigated by the indirect positive impacts via institutions and good public governance. This study gives insights to policymakers to take appropriate measures to decrease the severity of the financial shocks and improve healthcare services.

The development of the life insurance market and bank stability in developing countries

This study investigates the relationship between the development of the life insurance market and bank stability within the context of developing countries. We used data from 2012 to 2020 across 108 developing countries and applied econometric techniques, including fixed-effect and system generalized method of moments (GMM) methods, to test the relationship between the life insurance market size, life insurance market growth, and bank stability at the country level. Our results indicate a positive relationship between life insurance market size and bank stability, i.e., a large life insurance market can help increase bank stability in developing countries. However, these countries should refrain from developing their life insurance markets too quickly; according to our empirical results, there is an inverted U-shaped relationship between life insurance market growth and bank stability. In the context of the growing life insurance market in developing countries as well as the increasing cooperation between banks and insurance companies towards expanding the life insurance market in these countries, our research provides important policy implications for ensuring the stability for financial markets in general.

Does Green Finance Reduce Carbon Emissions? Global Evidence Based on System Generalized Method of Moments

Global environmental awareness has increased with the adoption of the sustainable development goals (SDGs) and the Paris Agreement. Global climate change has been a focal point in these international frameworks, with an emphasis on addressing environmental issues and setting specific targets for solutions. Financing plays a vital role in attaining goals established in international frameworks. The limitations of conventional finance have highlighted the need for green finance. There is a scarcity of studies in the literature examining the impact of green finance on carbon emissions, and a definitive conclusion has yet to be reached. This research aims to enhance the current literature by presenting empirical findings on how green finance influences carbon emissions globally. By employing the system generalized method of moments (GMM), developed by Arellano and Bover (1995) and Blundell and Bond (1998), this study investigated how green finance influences carbon emissions. Covering the span of 2017–2022, this study encompassed 48 countries across the globe. Green finance was found to have a negative and statistically significant impact on carbon emissions. Issuing green bonds to represent green finance, when increased by 1%, reduces carbon emissions by −0.012%.

Greenhouse gas assurance and carbon emission performance in light of the auditor’s reputation and the country’s development level

PurposeThe objective of this study is to determine the impact of GHG assurance on firms’ carbon emissions performance (CEP) regarding curbing carbon emissions and the effect on such by the GHG assurance provider’s affiliation and reputation. It also explores whether the affiliation and reputation of GHG assurance providers imply the relationship between GHG assurance and the firm’s CEP. Further, this study examines the moderating effect of the country’s development level on the relationship.Design/methodology/approachBased on a sample of international firms from 56 countries spanning the period from 2012 to 2020, this study utilizes the ordinary least squares (OLS) regression. We also run the OLS regression at times t+1 and t+2 to verify the baseline results. To address the endogeneity concerns arising from self-selection bias and the causality effect, this study applies the generalized method of moment (GMM) and the Heckman test.FindingsThis study finds that GHG assurance leads to better CEP by firms. We also find that engaging with accounting assurance providers leads firms to a better CEP than non-accounting assurance providers. Our results show that Big Four auditors can help firms decrease carbon emissions. We also find that the positive effect of GHG assurance is prevalent in firms operating in developed countries.Research limitations/implicationsOur study only considers the influence of the assuror’s reputation and affiliation on CEP without examining other factors that may influence the quality of assurance services provided.Practical implicationsOur study provides a practical implication related to the influence of a GHG assurance provider’s affiliation and reputation globally by providing evidence that accounting and Big Four assurance providers do play a significant role in a firm’s carbon emission performance. This study offers great insights into the GHG assurance impact on CEP with the interplay between the assuror’s affiliation and reputation and the country’s development.Originality/valueThis paper enriches the limit evidence on GHG assurance and CEP by providing novel evidence on the relationship between GHG assurance and a firm’s CEP. Moreover, this study provides insights into the implication of a country’s development level on the role of GHG assurance in CEP.

Bankruptcy spillovers and stock price crash risk of non-bankrupt firms

This paper examines whether corporate bankruptcies affect non-bankrupt firms' stock price crash risk. We observe that an upsurge in corporate bankruptcies adversely affects the crash risk of non-bankrupt firms in the industry. The increase in the crash risk following bankruptcy clustering in an industry is greater in financially constrained and financially distressed non-bankrupt firms. We also find that the creditor-in-control bankruptcy regime moderates the adverse effects of bankruptcy spillovers on the crash risk of non-bankrupt firms. Our results are robust to endogeneity tests (using GMM estimators) and tests that exclude industry downturns and macroeconomic shocks.

The Impact of Corporate Governance on Bank Risk-taking: Evidence of Islamic Banks in Gulf Cooperation Council (GCC) Countries

Purpose — This study investigates the impact of Islamic corporate governance variables on risk-taking within a sample of 31 Islamic banks (IBs) operating in six countries in the Arab Gulf region during the period 2013–2022. Design/Methodology/Approach — The study utilises content analysis and employs two econometric models: the random-effect generalised least squares (GLS) technique and the generalised method of moments (GMM) approach. Findings — The findings reveal that two characteristics of Sharīʿah supervisory boards (SSBs), namely cross membership and knowledge in accounting and finance, have a negative impact on bank risk. However, it is observed that SSB size demonstrates a positive correlation with bank risk-taking, indicating that SSBs face challenges in effectively performing their supervisory role. Furthermore, it is noted that during the pandemic period, banks demonstrated significantly higher levels of credit risk and global risk. Originality/Value — This research provides a valuable addition to the existing literature by conducting the inaugural analysis of the relationship between SSBs and bank risk-taking in the Arab Gulf region, adding to the understanding of Islamic corporate governance dynamics. Research Implications — The study suggests reinforcing the structure of SSBs in IBs in the Gulf Cooperation Council (GCC) countries by appointing members with educational backgrounds in business, accounting, and finance. Furthermore, it supports the idea that the presence of shared scholars in IBs facilitates rational decision-making by SSBs and contributes to reduced risk-taking. Haut du formulaire

Does official development assistance (ODA) cause the Dutch disease in developing countries

PurposeThis paper aims to investigate whether official development assistance (ODA) inflows to developing countries (lower-middle and low income) can cause the symptoms of Dutch disease or not.Design/methodology/approachThis study applies the methodology of dynamic panel data estimation with a one-step system generalized methods of moment (GMM) for the sample of 59 developing countries from 2001 to 2019.FindingsThe results indicate that ODA (as a percentage of gross domestic product (GDP)) rises by 1%, the real effective exchange rate (REER) appreciates by 0.252%. This finding reveals that these selected developing countries have faced the symptoms of Dutch disease. The countries with the higher ODA ratio have a higher effect of the Dutch disease, and the managed floating exchange rate regime is the lowest impacted, when compared to the fixed and flexible exchange rate.Practical implicationsThe selected countries are recommended to use ODA inflows right and efficiently. These ODA inflows should be invested in productive sectors or support for production rather than in consumption. The managed float exchange rate regime is applied to reduce the symptom of Dutch disease for the selected countries. The good cooperation of monetary and fiscal policies is important to absorb the huge ODA inflow and sterilize the adverse effects of the disease.Originality/valueThe paper contributes to the literature and empirical of the Dutch disease. An adverse effect of the huge ODA inflow to the developing countries appreciated of the real exchange rate and caused the symptom of the dutch disease.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-12-2022-0777

Islamic Banks’ Profit and Violations in Murābaḥah Financing

Purpose — This paper investigates the relationship between murābaḥah contracts and the profitability of Islamic banks, explicitly examining how potential Sharīʿah non-compliance issues related to murābaḥah contracts might impact the banks’ profitability. Design/Methodology/Approach — Employing the Generalised Method of Moments (GMM) estimation for fixed effects dynamic panels, this study analyses quarterly data from 2013Q4 to 2023Q1 of the four largest Islamic banks in Saudi Arabia. Findings — The results reveal a positive correlation between the increase in the value of murābaḥah contracts and Islamic earnings. While domestic macroeconomic conditions influence this relationship, international conditions have minimal impact. This investigation meticulously identifies instances of Sharīʿah violations within Islamic banks as they pursue a ‘search for yield’. Originality/Value — Prior studies have fallen short in establishing a definitive association between the profits of Islamic banks and the value of murābaḥah contracts. This research bridges this gap and introduces a novel dimension to the existing literature by illuminating the potential compromises in Sharīʿah compliance when employing murābaḥah contracts. The dual focus on both financial implications and ethical considerations makes this study unique, representing a significant contribution to the ongoing discourse in Islamic finance literature. Research Limitations/Implications — The availability of data on murābaḥah contracts may pose constraints to this study. Practical Implications — The analysis sheds light on various scenarios where Islamic banks may compromise their adherence to Sharīʿah principles in pursuit of higher profits, offering valuable solutions to address and rectify such violations.

The contingent role of state capacity on the impact of e-government on environmental sustainability in developing countries

E-government is a prominent approach in environmental sustainability as it brings various arrangements that allow for the mitigation of greenhouse gas emissions. The article explores two main objectives. Firstly, the direct impact of e-government on ecological sustainability and secondly, whether e-government enhances environmental sustainability indirectly by improving state capacity. By understanding this nexus, we believe that states in LDCs will seek to explore the maximum potential benefits of ICTs in government operations to establish a more responsive, open, and people-oriented government. The paper utilizes a balanced macro-panel sample of 45 United Nations classified least developed countries from 2003 to 2022. To ensure the reliability of empirical findings, three econometric methods—system generalized methods of moments (GMM), instrumental variable GMM (IV-GMM), and bootstrap ordinary least squares (BOLS) are employed. The results of the entire sample model reveal several key findings. These findings are that e-government development has a direct and positive impact on environmental sustainability, secondly state capacity negatively influences ecological sustainability, and lastly e-government development indirectly affects environmental sustainability by enhancing state capacity. Additionally, intriguing sub-sample findings for least developed countries in Africa and Asia are observed, with notable lessons from the latter, where environmental performance is improving at the expense of a high volume of carbon emissions. However, these overall findings underscore the importance of considering how governments can address environmental sustainability requirements by managing e-government programs and enacting responsible ICT-enabled transformations.

Can Servicification Benefit Manufacturing Exports? Empirical Results for India

To enhance manufacturing exports, India, a major player in the services segment, has recently created an enabling environment through the launch of several programmes, for example, the ‘Make-in-India’ and the production-linked incentive (PLI) schemes. As the firm-level evidence on the synergies between services input use (i.e., servicification) and manufacturing exports in the country is relatively scarce, the current analysis studies the relationship between them by using the CMIE-Prowess dataset over a period of 2000–2019, for both new and existing exporting firms. At the firm level, the article uses a two-step system generalized method of moments (GMM) estimator for studying the impact on export intensity, while a dynamic panel probit model is used to study the impacts on the decision to export. Apart from the analysis at the aggregate level, the influence of servicification is also judged for the low-tech and mid-to-hi-tech sectors separately and the disaggregated industry level. The observed positive relationship between servicification and manufacturing exports implies that the integration of competitiveness in the field of services with hi-tech manufacturing sectors can enhance India’s exports on the one hand and deepen firm-level global value chains participation on the other hand. JEL Codes: C23, F12, F14, F23, L25, L80

Addressing endogeneity in the relationship between early entry and performance: The case of foreign market expansion

Addressing endogeneity issues has been identified as a key priority for ensuring continued progress in the field of strategic management. We contribute to this research agenda by developing a generalized method of moments (GMM) estimation approach that accounts for endogeneity in dynamic models. To illustrate how endogeneity bias impedes reliable interpretation, we examine the relationship between early mover strategies and performance using data on multinational enterprises entering transition economies. Our empirical results demonstrate that early mover advantages are significantly greater after controlling for endogeneity. Additionally, we find evidence that the level of institutional development weakens the advantages of pursuing an early mover strategy in transition economies. After accounting for endogeneity, the negative moderating effect of institutional development is far more pronounced. The magnitude of these two biases underscore the necessity for scholars to adequately address endogeneity and how GMM estimation can facilitate in better understanding the performance implications of strategic choices.

An Empirical Analysis of Public Debt Sustainability in Kenya

The study provides a focused analysis of Kenya’s determinants of debt sustainability owing to its consistent budget deficits and higher debt servicing costs. Unlike broader studies, this research focuses on Kenya's unique economic conditions and talks about the consequences of unchecked debt servicing payment failures in Kenya that could undo macroeconomic progress if unchecked. The study deploys a single equitation regression analysis followed by a series of robustness checks and a generalized method of moments (GMM) technique to analyze the link for Kenya, 1990-2023. The regression results show that debt in Kenya is not sustainable, with factors such as an increase in debt stock, high-interest rate costs, increase in budget deficits, inflation rate increase and high depreciation of the local currencies ultimately wiping out the repayment potential of Kenya. However, the results show that increased export revenue earnings and faster economic growth can improve budget resources for debt servicing. Our findings suggest that policymakers in Kenya should focus on fiscal consolidation by reducing non-interest expenditures and enhancing revenue collections.

From death to birth: Do logistics parks help local renewals in logistics industry?

In the era of E-commerce and globalization, the logistics industry has become a new driving force for local economic development, with government-led logistics parks planned and constructed as a powerful policy instrument. Skeptical about whether logistics parks really take effect as expected, this paper investigates the local process of creative destruction in the logistics industry, focusing on how government-led logistics parks bridge between firm exit and firm entry during industrial renewal. Using firm-level data of third-party logistics firms in China from 2003 to 2021 and adopting system GMM estimator method, we verify that previous exit contributes to future entry but varies by the firm type and the city's importance in the regional transport network. Furthermore, we find two major roles of government-led logistics parks: (1) accelerating this process by providing the platform where various resources can be reused and reorganized into high-quality new logistics firms; and (2) prioritizing the rebirths from local existing firms over arrivals from other cities, though with some level of local protectionism. Government policies and planning decisions should maintain such function without inhibiting regional market integration.

Are government budgets a visible stabilizer? Evidence from China since the tax-assignment reform

PurposeThis study quantitatively examines the relationship between economic fluctuations and government budget size in the context of China’s fiscal decentralization, drawing inspiration from theoretical predictions of the Keynesian view and empirical studies on other economies.Design/methodology/approachThe panel comprises 31 provinces or equivalents in mainland China, spanning from 1994 to 2019. Diverse estimation strategies including two-way fixed effect regression, the generalized method of moments (GMM) and threshold regressions are, utilized.FindingsThe results suggest that under the “tax-assignment system”, neither the central government’s fiscal transfers nor the provincial budgetary revenues or expenditures help reduce economic volatility. Surprisingly, some regression outcomes suggest that government size measures destabilize business cycles.Originality/valueWhile the study does not provide supportive evidence for the stabilizing effect of public budgets in Chinese provinces, it promotes a rethinking of the government’s intricate role in macroeconomic stabilization in the context of China’s fiscal decentralization.

Influence of key ESG factors on Islamic banks’ financial performance: Evidence from GCC countries

With the global emphasis on sustainability, this research highlights the crucial role Islamic banks can play in sustainable development. The study evaluates how Environmental, Social, and Governance (ESG) practices impact the performance of Islamic banks in GCC countries from 2010 to 2021 using the generalized method of moments (GMM) approach to address potential endogeneity in panel data. Our findings show that while the overall ESG score does not significantly impact bank performance, individual ESG components do. The social component positively affects several performance indicators, governance impacts Return on Equity (ROE), and the environmental factor correlates positively with Tobin's Q. Despite the growing focus on ESG principles, their integration in Islamic banking is limited. By improving ESG performance and offering niche market services, Islamic banks can significantly contribute to sustainability. The study advises bank executives, investors, and policymakers to integrate ESG considerations into business and regulatory strategies to enhance the sector's role in achieving sustainability goals.

ESG and firm performance: do stakeholder engagement, financial constraints and religiosity matter?

PurposeThis study revisits the relationship between environmental, social and governance (ESG) activities and firm performance. More importantly, it tests whether this relationship is moderated by critical yet underexplored factors such as stakeholder engagement, financial constraints, and religiosity.Design/methodology/approachA wide range of estimation techniques, including pooled ordinary least squares (OLS), fixed effects, system generalized method of moments (GMM) and propensity score matching-difference-in-differences (PSM-DiD), are employed to investigate such issues in a large sample of firms from 31 countries.FindingsESG performance has a positive and significant impact on firm performance. While stakeholder engagement positively moderates this relationship, financial constraints and religiosity negatively moderate it. Interestingly, this positive linkage is driven by environmental and social performance rather than governance performance.Practical implicationsFirms should proactively engage in ESG initiatives and consider the intervening influences of stakeholder engagement, financial constraints and religiosity in making decisions to invest in ESG activities. Furthermore, our findings can help policymakers understand the financial consequences of ESG practices, which can be helpful in designing new policies to further promote corporate engagement in ESG practices.Originality/valueFirst, our research findings help reconcile the long-standing debate about the value impact of ESG. Second, our paper investigates relatively new aspects of the ESG-firm performance relationship. Third, our study offers more insight into the ESG literature by showing that not all ESG dimensions equally impact firm performance.

Regional (economic) integration, political stability uncertainty and (intra-African) exports

The economic literature reports ambiguous effects of regional economic integration (REI) and political stability on exports. Therefore, this research analyzes the effects of REI and political stability on intra-African exports, compares them to the effects on intra-African imports and explores the combined effect of REI and political stability on intra-African exports. We use the two-stage least squares and fixed-effects approach which includes the two-step feasible generalized method of moments (GMM) estimation to address endogeneity issues in a panel of 49 African countries over the period of 1996–2022. The results show that REI and political stability lead to an increase in intra-African exports. However, while REI results in an increase in intra-African imports, political stability results in a decrease; similar findings are highlighted for overall intra-African trade as well as for total exports of goods and services. The results remain robust across diverse estimation techniques. Furthermore, they reveal that political stability plays a role in amplifying the relationship between REI and intra-African exports. Supporting the African Continental Free Trade Area agenda, these findings imply that African policymakers need to (i) strengthen REI to increase intra-African trade and (ii) improve political stability to ensure that a greater part of REI is canalized in a more effective way in order to boost intra-African exports.