Generalized Method Of Moments Model Research Articles

Study on the Effect of Environmental Regulation on the Green Total Factor Productivity of Logistics Industry from the Perspective of Low Carbon

Under the low-carbon background, with the aid of the Malmquist–Luenberger SBM (Slack-based Measure) model of unexpected output, the green total factor productivity (GTFP) of the logistics industry in Jiangsu Province, China, was measured and decomposed in this study based on the reality and experience of logistics industry development in 13 cities in three regions of Jiangsu Province in the years 2006–2018 by taking resource consumption into the input system and discharged pollutants into the output system. It is concluded that the environmental regulation (ER) has a significant positive effect on the growth of the GTFP of the logistics industry, and technological progress has become an important endogenous force that promotes the GTFP of the logistics industry in Jiangsu Province. On this basis, a dynamic GMM (Generalized method of moment) model and a Tobit model were constructed to further study the possible temporal and spatial effects of ER on the GTFP of the logistics industry. The research results reveal that the ER can exert both promoting and inhibitory effects on the GTFP of the logistics industry, and there is a temporal turning point for the effects. Besides, the effects notably differ spatially and temporally. Finally, some policies and advice for the green sustainable development of the logistics industry were proposed. For example, the government and enterprises should pay attention to the green and efficient development of the logistics industry and dynamically adjust the ER methods. They should consider the greening of both forward logistics links and reverse logistics system in the supply chain.

Impact of urbanization on the eco-efficiency of cultivated land utilization: A case study on the Yangtze River Economic Belt, China

Abstract Today, scholars and governments focus on the loss of cultivated land resources as a result of urbanization, but ignore urbanization's impact on the eco-efficiency of cultivated land utilization (ECLU), which causes the wastage of cultivated land resources and environmental pollution. Hence, this study systematically analyzes how urbanization influences the ECLU and proposes four of the former's effects on the latter: agglomeration, barrier, driving, and feedback effects. Further, it uses the System Generalized Method of Moments (GMM) and threshold models to estimate urbanization's impact on the ECLU. The estimation results of System GMM model reveal that agglomeration and barrier effects have a significant negative effect on the ECLU, with regression coefficients of −0.6725 and −0.0415, respectively. Contrarily, driving and feedback effects have a significant positive effect on the ECLU, with regression coefficients of 0.0274 and 0.1423, respectively. Further, the threshold analysis demonstrates that the barrier, driving, and feedback effects of urbanization have single threshold values of 20.7%, 22.8%, and 18.2%, respectively, whereas the agglomeration effect by itself has two threshold values of 18.3% and 49.5%. The study concludes that focusing only on the urbanization-related occupation of cultivated land while ignoring the urbanization's effects on the ECLU will jeopardize food security and the ecological environment. After considering the effects of different levels of urbanization on the ECLU, the government should formulate appropriate policies and measures to realize the sustainable utilization of cultivated land resources.

Facets of business-to-business brand equity: mixed-methods approach

PurposeThe purpose of this paper is to highlight various aspects of business-to-business brand equity (B2BBE) and explain relative impact of marketing/advertising, research and development (R&D), human resource and distribution network to build compelling business brands that display better firm performance.Design/methodology/approachA total of 51 in-depth semi-structured interviews with distributors and industrial buyers revealed different facets of B2BBE. Generalized method of moments (GMM) was applied on a large-scale panel data set of industrial firms to estimate the effects of firms’ R&D, advertising/marketing, distribution and staff training (proxy to sources of B2BBE) on sales.FindingsFirst, varying levels of product application criticality and end-customer brand stature reflect four distinct organizational purchase requirements, namely, assured performance, prestige, brand leaders and commodity. Second, a taxonomy of five sources of B2BBE (prominence, solutions, accessibility, relationships and network strength) manifests buyers’ interactive experience during the purchase cycle. Third, it illustrates the positive short-term effect of all explanatory variables coupled with the positive long-term impact of R&D on sales.Practical implicationsFeatures like B2C brand image, clear and precise product information, credit/flexible payment terms, distributor image, add-on services to the core product and upstream–downstream referrals characterize strong brands. GMM model results help managers, in budget allocation.Originality/valueThe originality of this paper lies in proposing a comprehensive B2BBE framework based on triangulation; deployment of a common structure to simultaneously investigate distributors and industrial buyers, to discover whether their philosophies reinforce/undermine industrial branding strategies; and suggesting the use of GMM model to arrive at actionable insights.

Dynamics of Firm’s Capital Structure Along The Life Cycle of Indonesian Manufacturing Firms

Life cycle of the firm has an important role in the dynamics of firm’s capital structure. A firm will take different funding decision along the life cycle because the firm’s characteristics that affect the capital structure will adjust itself as the tranformation of the life cycle occuring. The research objectives were to analize the dynamic of firm’s capital structure across three-life cycle stages of Indonesian manufacturing companies listed with a total sample of 121 companies observed during the period from 2011 to 2016. By using dynamic panel data analysis with Generalized Method of Moments (GMM) model, we find that profitability and liquidity affect the firm’s life cycle for a growing stage, meanwhile the fixed asset, growth opportunities, profitability, and liquidity affect the capital structure for a mature stage, whereas only liquidity that affects capital structure for a decline stage. The coefficient of lag dependent variable of GMM model representing the previous year capital structure showed an adjustment rate of capital structure. The lowest speed of adjustment occurred on the decline stage which was orderly followed by the growth and mature stage. Keywords: capital structure, life cycle of firm, firm’s characteristics, dynamic panel data analysis

Revisiting the growth effects of government bonds in the emerging capital market.

We revisited the effects of government bonds for the growth on the Nigerian capital market. Utilising time-series data obtained from the Nigeria Stock Exchange (NSE) annual reports for the period from 2010 to 2017, this study through the Generalised Method of Moments (GMM) regression estimator found that the value and the number of listed government bonds’ positively and significantly affect capital market growth in Nigeria. Furthermore, low capitalisation of government bonds negatively affects the growth of the market. The null hypothesis of the Hansen J-statistics is accepted; hence this implies that the IVs used in the GMM model is valid. We concluded that government bonds have positive and significant effects on the growth of the Nigerian capital market, thus government bonds have made the NSE All-Share Index grow over the period under investigation. Following the findings from the study, it was recommended, inter alia, that there should be more issuance of government bonds to the public and further to enhance the efficiency of the capital markets, both primary and secondary, while the funds raised from the capital market through government issuance should be channelled towards Nigeria’s productive sectors to promote an all-inclusive growth in the Nigerian economy.

Corporate governance, globalization and firm performance in emerging economies

PurposeThe purpose of this paper is to examine relationship between corporate governance (CG) and firm performance for a set of 255 foreign-funded firms in the form of foreign direct investment (FDI) and private equity (PE). The authors employ a wide range of CG measures including board size, meetings, board gender and foreign ownership which are used as the proxy of globalisation and control variables like firm age, leverage, firm size and capital expenditure to arrive at a conclusion.Design/methodology/approachPanel data set of 255 (187 companies funded by foreign capital in the form of FDI, and 68 companies having foreign capital in the form PE) companies listed on Bombay Stock Exchange, for the period of eight years (2008–2015) are analysed by using static (fixed and random effects) and dynamic (generalised method of moments (GMM)) panel data specifications to examine the relationship among CG, globalisation and firm performance.FindingsThe empirical results of static model indicate the relationship between CG and performance of foreign firms, which are not very strong in India. This is due to the fact that most of the firms are not following the guidelines and regulations strictly in the initial period of sample years. Diversity in board is found as an important variable in accessing firm performance. And the authors also found that foreign firms are very particular about the implementation of CG norms. The results of GMM model highlight the interaction term of foreign ownership with governance indicators. CG is having a positive and significant impact over performance, inferring that higher foreign ownership (in the form of FDI and PE) in firm leading to positive effect on profitability.Practical implicationsThe investor’s preference of financing a unit is guided by the performance of a firm. Investors are more inclined towards high-performing firms, and hence higher profitability leads to higher inflow of capital. The result indicates that higher accounting and market performance may be achieved by good governance practices, in turn, leading to reduced agency costs. Countries with high governance scores attract more of foreign capital. Similar to the best governed countries, the companies having good governance practices attract more foreign inflows in the form of capital.Originality/valueWhile previous literature considered a single measurement framework in the form of a CG index, the authors tried to incorporate a range of CG indicators to study the effect of globalisation and CG on firm performance. The authors segregated foreign-owned funds into two parts, especially FDI and PE. This paper examined heterogeneity in the form of FDI-funded and PE-funded firms, as no prior literature is available which has evaluated different sets of foreign funds simultaneously on CG.

The effect of ownership composition on earnings management: evidence for the Mexican stock exchange

PurposeThis paper aims to examine the relationship between different types of shareholders that command share ownership, family, institutions or external blockholders and earnings management. In addition, it examines the effect of company size on earnings management.Design/methodology/approachThe sample includes 67 companies listed in the Mexican Stock Exchange for the period 2005-2015. The sample composition is quite industry-balanced. A cross-sectional version of the Jones model (1991) is to measure the earnings management. The GMM (generalized method of moments) model is also estimated.FindingsThe results show that family and institutional ownership reduce the earnings management, but the impact is different depending on the company size.Research limitations/implicationsThe results show that there is a clear relationship between increasing participation of family and institutional investors and a reduction in earnings management. This is consistent with the literature that establishes that ownership is an effective regulatory mechanism that limits earnings management through closer supervision and involvement in management.Practical/implicationsFor companies’ corporate governance and regulatory authorities, the results of this study may serve to improve the decision-making.Originality/valueThis study shows that ownership structure can provide corporate governance in Mexican listed companies with different monitoring and control capacities to influence companies’ strategies, particularly in relation to the discretion of earnings management.

A generalized focused information criterion for GMM

SummaryThis paper proposes a criterion for simultaneous generalized method of moments model and moment selection: the generalized focused information criterion (GFIC). Rather than attempting to identify the “true” specification, the GFIC chooses from a set of potentially misspecified moment conditions and parameter restrictions to minimize the mean squared error (MSE) of a user‐specified target parameter. The intent of the GFIC is to formalize a situation common in applied practice. An applied researcher begins with a set of fairly weak “baseline” assumptions, assumed to be correct, and must decide whether to impose any of a number of stronger, more controversial “suspect” assumptions that yield parameter restrictions, additional moment conditions, or both. Provided that the baseline assumptions identify the model, we show how to construct an asymptotically unbiased estimator of the asymptotic MSE to select over these suspect assumptions: the GFIC. We go on to provide results for postselection inference and model averaging that can be applied both to the GFIC and various alternative selection criteria. To illustrate how our criterion can be used in practice, we specialize the GFIC to the problem of selecting over exogeneity assumptions and lag lengths in a dynamic panel model, and show that it performs well in simulations. We conclude by applying the GFIC to a dynamic panel data model for the price elasticity of cigarette demand.

Dealing with endogeneity bias: The generalized method of moments (GMM) for panel data

Endogeneity bias can lead to inconsistent estimates and incorrect inferences, which may provide misleading conclusions and inappropriate theoretical interpretations. Sometimes, such bias can even lead to coefficients having the wrong sign. Although this is a long-standing issue, it is now emerging in marketing and management science, with high-ranked journals increasingly exploring the issue. In this paper, we methodologically demonstrate how to detect and deal with endogeneity issues in panel data. For illustration purposes, we used a dataset consisting of observations over a 15-year period (i.e., 2002 to 2016) from 101 UK listed companies and examined the direct effect of R&D expenditures, corporate governance, and firms' characteristics on performance. Due to endogeneity bias, the result of our analyses indicates significant differences in findings reported under the ordinary least square (OLS) approach, fixed effects and the generalized method of moments (GMM) estimations. We also provide generic STATA commands that can be utilized by marketing researchers in implementing a GMM model that better controls for the three sources of endogeneity, namely, unobserved heterogeneity, simultaneity and dynamic endogeneity.

Competition, Securitization, and Efficiency in US Banks

Abstract This paper investigates the different effects of competition and securitization on US bank efficiency between 2001 and 2019. Using Propensity Score Matching (PSM) and a two-step dynamic Generalized Method of Moments (GMM) estimation, we find that higher securitization increases banks’ cost efficiency scores. When banks are under competitive pressure, the fixed-effects and GMM models show that securitization is positively associated with the cost efficiency of banks, while it mitigates their screening and monitoring incentives. Robust to a battery of alternative tests, our findings introduce bank efficiency as a new mechanism explaining how banks that securitize loans insignificantly invest in screening and monitoring their potentially risky borrowers. In order to promote sustainable loan quality, this paper underlines the importance of improved regulation in highly competitive markets where loan securitization is more common.

Firm performance, corporate governance and executive compensation in Pakistan

ABSTRACTThis study examines the effects of firm performance and corporate governance on chief executive officer (CEO) compensation in an emerging market, Pakistan. Using a more robust Generalized Method of Moments (GMM) estimation approach for a sample of non-financial firms listed at Karachi Stock Exchange over the period 2005–2012, we find that both current- and previous-year accounting performances has positive influence on CEO compensation. However, stock market performance does not appear to have a positive impact on executive compensation. We further find that ownership concentration is positively related with CEO compensation, indicating some kind of collusion between management and largest shareholder to get personal benefits. Inconsistent with agency theory, CEO duality appears to have a negative influence, while board size and board independence have no convincing relationship with CEO compensation, indicating board ineffectiveness in reducing CEO entrenchment. The results of dynamic GMM model suggest that CEO pay is highly persistent and takes time to adjust to long-run equilibrium.

How do Chinese firms adjust their financial leverage: an empirical investigation using multiple GMM models

BackgroundGiven the unique market setting and institutional environment of China, this study tries to investigate targeting behavior of Chinese firms towards leverage and the determinants of leverage policy in China at various levels.MethodsFor this purpose, we used an extensive set of data of 760 firms over a period from 2001 to 2013. To investigate the adjustment behavior towards target leverage policy, this study uses the GMM (generalized method of moments) models of Arellano and Bover (J Econ 68:29–51, 1995)/Blundell and Bond (Econ Rev 19:321–340, 2000) to estimate the adjustment behavior and adjustment speed towards a target level of leverage. The study finds that Chinese firms have a target level of leverage and firms tries to adjust to their target.ResultsWe found that adjustment rate of Chinese state-owned enterprises is higher than Chinese non-state owned, indicating an aggressive leverage policy for SOEs (state-owned enterprises). Further, the study found that some firm-level factors like firm size and growth opportunities have significant and positive effect on firms leverage. Profitability and firm liquidity is found to have a negative relationship with firm leverage. At country level, GDP (gross domestic product) is found to have positive impact of firm leverage policy. The negative relationship of lending rate with leverage shows that firms in China reduce debt financing when lending rates in the market increase.ConclusionsAll these findings indicate significant policy implications for Chinese firms. At adjustment level, regulatory bodies should ensure that all firms are at ease while raising their debt and thus avoid a pecking order in lending policy. At industry level, institutions should try to curtail industry concentration to provide an equal ground of debt issuing to the firms.

Comparative GMM and GQL logistic regression models on hierarchical data

ABSTRACTWe often rely on the likelihood to obtain estimates of regression parameters but it is not readily available for generalized linear mixed models (GLMMs). Inferences for the regression coefficients and the covariance parameters are key in these models. We presented alternative approaches for analyzing binary data from a hierarchical structure that do not rely on any distributional assumptions: a generalized quasi-likelihood (GQL) approach and a generalized method of moments (GMM) approach. These are alternative approaches to the typical maximum-likelihood approximation approach in Statistical Analysis System (SAS) such as Laplace approximation (LAP). We examined and compared the performance of GQL and GMM approaches with multiple random effects to the LAP approach as used in PROC GLIMMIX, SAS. The GQL approach tends to produce unbiased estimates, whereas the LAP approach can lead to highly biased estimates for certain scenarios. The GQL approach produces more accurate estimates on both the regression coefficients and the covariance parameters with smaller standard errors as compared to the GMM approach. We found that both GQL and GMM approaches are less likely to result in non-convergence as opposed to the LAP approach. A simulation study was conducted and a numerical example was presented for illustrative purposes.

Military spending, armed conflict and economic growth in developing countries in the post-Cold War era

PurposeWhile the relationship between military expenditure and economic growth during the Cold War period is well-researched, relatively less is known on the issue for the post-Cold War era. Equally how the relationship varies with respect to exposure to conflict is also not fully examined. Therefore, the purpose of this paper is to investigate the causal impact of military expenditure on growth in the presence of internal and external threats for the period 1990-2013 using data from 70 developing countries.Design/methodology/approachThe main estimates are based on the generalized method of moments (GMM) regression model. But for comparison purposes, the authors also report estimates using fixed and random effects as well as pooled cross-section regressions. The regression specification accounts for non-linear effect of military expenditure allowing for interaction with conflict variable (where distinction is made between external and internal conflict).FindingsThe analysis indicates that methods as well as model specification matter in studying the effect of military spending on growth. Full sample estimates based on GMM, fixed, and random effects models suggest a negative and statistically significant effect of military expenditure. However, fixed effects estimate becomes insignificant for low-income countries. The effect of military spending is also insignificant in the cross-sectional OLS model if conflict is not considered. When the regression model additionally controls for conflict, the effect of military spending conditional upon (internal) conflict exposure is significant and positive. No such effect is present conditional upon external threat.Research limitations/implicationsOne important limitation of the analysis is the small sample size – the authors had to restrict analysis to 70 low and middle-income countries for which the authors could construct post-Cold War panel data on military expenditure along with information on armed conflict exposure (the later from the Uppsala Conflict Data Program, 2015).Originality/valueTo the best of the author’s knowledge, this is the first paper to examine the joint impact of military expenditure and conflict on economic growth in post-Cold War period in a sample of developing countries. Moreover, an attempt is made to review and revisit the large Cold War literature where studies vary considerably in terms findings. A key reason for this is the somewhat ad hoc choice of econometric methods – most rely on cross-section data and rarely conduct sensitivity analysis. The authors instead rely on panel data estimates but also report results based on naïve models for comparison purposes.

New evidence on the impact of economic conditions and banking legislation on the bank failure rate in the US, 1970 to 2014

Purpose This study aims to identify factors influencing the bank failure rate in the USA over the period from 1970 to 2014 with an emphasis on economic/financial factors on the one hand and on banking legislation on the other hand. Regarding the latter, this study empirically investigates four major banking statutes: the Community Reinvestment Act of 1977; the Depository Institutions Deregulation and Monetary Control Act of 1980; the Federal Deposit Insurance Corporation Improvement Act of 1991; and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. After adopting the technique of generalized method of moments (GMM), a robustness check in the form of autoregressive conditional heteroskedasticity (ARCH) is undertaken. Overall, the estimations imply that the bank failure rate was a decreasing function of the percentage growth rate of real gross domestic product (GDP) and the real interest rate yields on both three-month US Treasury bills and 30-year fixed-rate mortgages and an increasing function of the real cost of funds. In addition, there is strong evidence that the bank failure rate was increased by provisions in the Community Reinvestment Act of 1977 and the Depository Institutions Deregulation and Monetary Control Act of 1980, whereas the bank failure rate was decreased as a result of provisions in the Federal Deposit Insurance Corporation Improvement Act of 1991 and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Finally, there also is evidence that higher federal budget deficits elevated the bank failure rate. Design/methodology/approach After modeling the bank failure rate as a function of financial/economic variables and banking legislation, the times series from 1970 to 2014 is estimated by GMM and then by the ARCH techniques. Findings The results of the GMM and ARCH estimations imply that the bank failure rate in the US was a decreasing function of the percentage growth rate of real GDP as well as the real interest rate yields on both three-month US Treasury bills and 30-year fixed-rate mortgages and an increasing function of the real cost of funds. Furthermore, there is strong empirical support indicating that the bank failure rate was elevated by various provisions in the Community Reinvestment Act of 1977 and in the Depository Institutions Deregulation and Monetary Control Act of 1980, while the bank failure rate was reduced by certain provisions in the Federal Deposit Insurance Corporation Improvement Act of 1991 and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. There also is evidence that higher federal budget deficits increased the bank failure rate. Originality/value This study is the most contemporary (1970-2014) analysis of potential causes of the bank failure rate in the USA. The study also may be the first to apply the GMM and GARCH models to the problem. Also, some interesting policy implications are provided in the Conclusion.

Corporate diversification and firm value: evidence from emerging markets

Purpose – The purpose of this paper is to investigate the impact of corporate diversification on firm value in a sample of nine emerging markets including Brazil, Chile, Indonesia, Malaysia, Philippines, Poland, South Africa, Thailand, and Turkey. For the purpose of this study, a company is classified as diversified when it is operating in two or more lines of business defined by the two-digit SIC codes. Design/methodology/approach – Employing panel data from 1,568 companies for the period 2005-2010, this paper estimates both a fixed effects model and a dynamic generalized method of moments model. Data are collected both at company level and segment level within each firm. Findings – Overall, analysis results suggest that, for the period from 2005 to 2010, diversified firms in emerging markets are valued more compared to single-segment firms operating in similar industries, providing support for diversification premium. Originality/value – The effect of diversification on company value in emerging markets is an important managerial and public policy concern. Although the literature on developed country diversified firms is rich, only a few studies have examined diversification-value relationship in the context of developing countries. Furthermore, most previous research on the value effects of corporate diversification in emerging markets has taken the form of case studies within countries and concentrated on the 1990s. This paper tries to fill these gaps by using a larger sample and more recent data and methodology.

The Dynamics of Involuntary Commercial Banks’ Reserves in Trinidad and Tobago

This paper examines the dynamics of excess liquidity in a small open energy producing economy, namely Trinidad and Tobago. The banking system in that country has persistently recorded high excess liquidity. For example, during 2010, excess reserves increased by six times what it was three years earlier. This has posed serious challenges for the Central Bank given the market based style of monetary policy adopted. We argue that an accumulation of excess reserves beyond prudential levels can be offsetting to monetary policy. To estimate the dynamics of involuntary excess reserves we use a two-step procedure. The first step employs Generalized Method of Moments (GMM) to examine how liquidity needs impact on the holding of precautionary excess reserves. The GMM model reveals that commercial banks hold excess reserves for precautionary purposes. Second, we employ impulse response functions to explore the dynamic effects of increased government expenditure on involuntary reserves held by commercial banks. The generalized impulse responses, obtained from a Vector Error Correction (VEC) model, show that government expenditure leads to sustained elevation of involuntary reserves.

Valid Inference in Partially Unstable Generalized Method of Moments Models

This paper considers time series Generalized Method of Moments (GMM) models where a subset of the parameters are time varying. We focus on an empirically relevant case with moderately large instabilities, which are well approximated by a local asymptotic embedding that does not allow the instability to be detected with certainty, even in the limit. We show that for many forms of the instability and a large class of GMM models, usual GMM inference on the subset of stable parameters is asymptotically unaffected by the partial instability. In the empirical analysis of presumably stable parameters—such as structural parameters in Euler conditions—one can thus ignore moderate instabilities in other parts of the model and still obtain approximately correct inference.

Effect of Primary Care Visits on the Demand for Specialty Care in Health Maintenance Organizations

Health maintenance organizations (HMOs) provide low cost access to primary care physicians (PCPs) in an effort to restrict expensive specialty use. Although managed care plans hope that low cost primary care will reduce specialist use, the theoretical effect of easing access to primary care on specialty use is unclear. Despite the importance of estimating the effect of PCP visits on specialty use, no previous studies have directly addressed this question at the enrollee level. This study examines the effect of visits to the PCP on the demand for episodes of specialty care in two health plans: a gatekeeper HMO and a point-of-service plan. Using person-level data, we estimate a generalized method of moments model of specialty episodes that accounts for the endogeneity of PCP visits within a count-data framework. We compare this model to three alternative models—an OLS model, a negative binomial model, and a two-stage least squares model. We find evidence that increases in primary care visits increase episodes of specialty care in both plans. We also find that the three alternative models yield biased but more efficient estimates compared to the generalized method of moments model.

On Public Investment, the Real Exchange Rate and Growth: Some Empirical Evidence from the UK and the USA

This study is based on a two‐country endogenous growth model with optimizing agents, where public investment affects the real exchange rate and the long‐run growth rate, and does so in a non‐linear fashion. Non‐parametric regression analysis of quarterly data from the UK and the USA suggests that there is a significant non‐linear relationship between public investment and the real exchange rate, and also between public investment and the growth rate. This is also supported by our parametric generalized method of moments model that jointly determines the real exchange rate, growth rate and net foreign assets in terms of public investment.