Generalized Method Of Moments Research Articles

Digital financial inclusion, international remittances, and poverty reduction

Ensuring access to and usage of formal financial services through digital devices can be referred to as “digital financial inclusion” (DFI). In recent years, there has been a growing trend in the use of financial services, including money transfers through mobile phones. This study applies mobile phone subscriptions as a proxy to measure the degree of DFI and explores the individual effects of DFI and remittances and their interaction effects on poverty conditions in developing countries. Using panel data from 2000 to 2020 for 123 countries and employing the dynamic generalized method of moments estimation, the results reveal that DFI and remittance inflows help ameliorate poverty in developing countries. Furthermore, we find that the coefficient of the interaction term between DFI and remittances is statistically significant and positive, suggesting that the impact of DFI on poverty alleviation could weaken as remittance inflows increase in the remittance-receiving country and vice versa.

Foreign direct investment, information and communication technology, and economic growth: The case of North African Countries

This paper examines the role of information and communication technology (ICT) in modulating the effects of foreign direct investment (FDI) on economic growth in North Africa (Morocco, Algeria, Tunisia, and Egypt) over the period 1995 to 2021. Using advanced quantitative methods, including quantile regression, and comparing with Two-Stage Least Squares (2SLS) regression and Generalized Method of Moments (GMM), the study assesses the impact of FDI and ICT on growth, controlling for country fixed effects. The results indicate that FDI has a significant positive impact on growth, particularly when interacting with transmission channels, notably the telephone (mobile and fixed). However, the interaction with the internet varies according to quantile levels, showing positive effects at low quantiles and negative effects at high quantiles. The study highlights the importance of investment policies, digital inclusion, and research to optimize the benefits of FDI in the region.

Innovation and environmental protection: An EU perspective

The objective of this paper is to explore how environmental protection expenditures (EPE) affect innovation and investigate the potential causal relationship between the two variables. The novelty and main contribution of our paper to the literature stems from the fact that we look at total environmental protection expenditures from both the public and private sectors, and distinguishing between corporations and households in the private sectors. We also consider both inputs and outputs of innovation and address potential endogeneity issues in this relationship, which are both lacking in the current literature. Using a panel of EU countries over the period 2006–2020, this study generally finds a positive impact of EPE on innovation after controlling for the effects of trade, credit, education and inflation on innovation, and using the System GMM estimator to treat endogeneity. Moreover, EPE from the government sector drives the bulk of this positive impact. The core results are robust to alternative measures of innovation, alternative estimation techniques that address endogeneity (i.e., the Lewbel 2SLS, Mundlak, and Hausman-Taylor estimators) and the moderation effects of Climate Change Performance (CCPI). This study also provides a useful guide to policy makers engaged in environmental planning.

Sustainable accounting quality and its impact on financial success aligned with SDGs

Purpose Financial and nonfinancial disclosures (sustainable accounting) are crucial in the annual financial reports of many firms. This study aims to explore the dynamic relationship between sustainability disclosure quality (SDQ) and financial performance (FP) within mandatory disclosure frameworks. SDQ is evaluated across six dimensions, encompassing both the quality and quantity of disclosures, aiming to understand their reciprocal influence. Design/methodology/approach Using the generalized method of moments (GMM), this research analyzes data from 2013 to 2019, focusing on 99 listed Indian firms within the S&P Bombay stock exchange (BSE) 500 index. The study uses rigorous measurement criteria to assess SDQ and uses statistical methods to unveil the causal link between SDQ and FP. Findings The results show a positive causal connection between SDQ and FP, where organizations with good FP make relatively higher disclosures across FP proxies than their counterparts. Additionally, the study investigates the impact of research and development (R&D) expenditure and dividend payments (DIVD) on SDQ. Notably, lower R&D spending is associated with higher quality SDs, and companies with superior SDQ exhibit increased DIVD. Practical implications The findings advocate for strengthened regulatory compliance, incentivized sustainable practices and heightened reporting standards for a transparent business environment and achieving the relevant United Nations Sustainable Development Goals. Originality/value This research contributes original insights by uncovering the intricate relationship between SDQ and FP, shedding light on the impact of R&D expenditure and DIVD on SDQ. These findings contribute to a nuanced understanding of the interplay between FP and sustainability reporting within the context of mandatory disclosure frameworks.

A machine learning and quantile analysis of FINTECH and resource efficiency in achieving sustainable development in OECD countries

This study aims to examine the impact of fintech investments and resource efficiency on sustainable development in OECD countries between 2010 and 2019. Various estimation techniques, including the Method of Moments Quantile Regression (MMQREG), machine learning-based Kernel Regularized Least Squares (KRLS), and Generalized Method of Moments (GMM), have been utilized in this study. MMQREG and KRLS are both estimators that examine the relationship between variables in several qunatiles, increasing the reliability of the findings. The research results indicate that fintech investments and resource efficiency support sustainable development. Additionally, institutional quality, environmentally friendly technologies, and foreign trade are found to have a positive impact on sustainable development. These findings suggest that financial technology and resource management can play a significant role in promoting both economic and environmental sustainability.

Market power, human capital efficiency and bank performance in Kenya

PurposeThe study evaluates the influence of human capital efficiency (HCE) and market power on bank performance.Design/methodology/approachThe study employs two measures of bank performance: profitability and stability. Unbalanced panel data of 35 banks operating in Kenya for 2005–2020 collected from published financial statements is utilized. The study employs the feasible generalized least squares (FGLS) method in the analysis and the two-step system generalized method of moments (GMM) for robustness check.FindingsThe study affirms an inverted U-shaped relationship between market power and bank performance. The effect of market power on bank profitability is enhanced when a bank has highly efficient human capital. Further, HCE significantly impacts bank stability for banks with low HCE. Interestingly, a further increase in HCE narrows the net interest margins for banks with high HCE, conferring welfare benefits to customers as interest rate spreads shrink.Practical implicationsThis study provides important insights into the role of human capital in bank performance. First, banks ought to invest in promoting HCE through training and development. As regulators root for bank consolidation, attention to HCE is imperative for fostering profitability and stability.Originality/valueThe study fills an essential gap in the literature by evaluating the effect of firm-level market power on bank performance in an emerging market. We adopt a novel stochastic frontier estimator to generate the Lerner index. Further, this is the first study known to the authors to evaluate the effect of market power on bank performance in the context of human capital efficiency variations.

Human Capital Efficiency and Firm Performance of Quality-Certified Firms from EFQM Excellence Model: A Dynamic Panel Data Study

Abstract Purpose The study’s main purpose is to investigate the impacts of human capital efficiency (HCE) on the firm performance of non-certified and quality-certified firms from the European Foundation for Quality Management (EFQM) Excellence Model. The study also examines the relationship between firm performance and quality-certificates from the European Foundation. Design/methodology/approach By using a sample of 282 non-certified and 22 quality-certified firms from 2017 to 2021, the current study employed a two-step system generalized method of moments (GMM) estimation to analyse the empirical data. The dummy variable is used to examine the relationship between quality-certificates and firm performance. The dummy interaction term is employed to quantify the impacts of HCE on the firm’s performance for quality-certified firms. Findings The results revealed that quality-certificates and firm performance have a positive relationship. Quality-certified firms perform better and earn more profits than non-certified firms. HCE has a positive impact on firm performance for both types of firms. Moreover, the quality-certified firms utilize HCE in an efficient way to earn more profits compared to the non-certified firms. Originality This is the first study to use a comprehensive analysis to emphasize the HCE for non-certified and quality-certified firms separately. The effects of quality-certificates on firm performance in the context of HCE are also being highlighted for the first time in this research. Practical implications The current study’s findings are fruitful for academics, managers, researchers, policymakers, and other firm management. The findings will encourage the management of the firms to implement the total quality management (TQM) approach within their firms.

Addressing environment, social and governance (ESG) investment in China: Does board composition and financing decision matter?

This study examined the link between board composition and environment, social and governance (ESG) investment, and how financing decisions moderate this nexus. The study constructed hypotheses using insights derived from stakeholder and agency theories. We used secondary data from 2010 to 2022 to conduct an empirical analysis using the system Generalized Method of Moments (GMM) and Fixed Effect (FE) estimators. This study found a positive and significant relationship between board independence, sustainability committee, gender diversity, managerial ownership, board meetings and ESG investment. We also found a negative connection between CEO duality, board size, foreign nationals on the board, annual remuneration, and ESG investment. Furthermore, financing decisions significantly moderated the relationship between board composition and ESG investment. The results confirm the importance of board composition and financing decisions in ESG investment in Chinese manufacturing firms. The results show that splitting the CEO and chairperson roles and frequent board meetings can improve a company's ESG investment. Policymakers should facilitate company operations by providing regulations for ESG investment.

Inference of Dynamic Spatial Panel Data Model and Its Application in Carbon Emission Analysis

The Spatial Dynamic Panel Data (SDPD) model is a widely used statistical model in the fields of economics and social sciences and has been the subject of extensive research by many scholars in recent years. Existing methods for parameter estimation primarily focus on improvements to the Generalized Method of Moments (GMM) and Quasi-Maximum Likelihood (QML). In this paper, we employ the method of Empirical Likelihood (EL) for statistical inference of the dynamic spatial panel data model and obtain confidence regions for the parameters. Through numerical simulations, we present the performance of the confidence regions obtained using the Empirical Likelihood (EL) and the Asymptotically Normal (NA) methods under finite samples and compare the two approaches. Finally, we analyze carbon using the suggested model and techniques.

Research and development expenditure gap: does women’s political empowerment matter?

ABSTRACT Sustained economic growth has been high on the list of priorities of many developed and developing nations, and the importance of new technology to sustained economic growth has long been recognized in the literature. Despite the extent of this literature and the importance of innovation to economic outcomes, surprisingly little is known about the effect of women’s political empowerment in the research sector. This study proposes filling this gap by examining the effect of women’s political empowerment on research and development expenditure. Using data from 66 developed and developing countries and system GMM estimation, we show that women’s political empowerment has exerted, on average, a positive effect on research and development investment. Moreover, further study shows that women's level of participation in civil society has the largest effect, followed by women’s civil liberties. By analyzing these underlying transmission channels, we find that this effect is partly due to the positive effects of women's political empowerment on the accumulation of human capital and on institutional quality, which in turn improve the level of spending on research and development. Based on these results, economic policy implications are discussed.

Impact of regulatory capital on bank interest margins: Moderating role of default risk

The recent pandemic and aftermath debate regarding bank interest margins deserve special attention and have become policy dialogue in emerging economies. However, the previous literature's findings were largely inconclusive and ignored influential variables such as the impact of default risk on bank interest margins. Using a two-step system GMM estimation considering 32 Bangladeshi commercial banks from 2000 to 2022, we produce robust evidence that higher regulatory capital restrictions reduce the bank interest margin, while increased default risk induces the bank interest margin. The impact intensity during the COVID pandemic is higher than in the pre-COVID period. Moreover, we find the synergy effect of regulatory capital and default risk assists in reducing the bank interest margin. Bank margin persistently fell during the capital market crash period, whereas it rose in the financial crisis period. We cast several robustness tests to confirm our main findings. These findings could generate important implications for bank stakeholders and policymakers.

Does Institutional Setting Contribute to the Public Debt — Income Inequality Relationship in Developing Economies?

In the context of increasing globalization, income inequality is one severe problem in several countries because it widens the income gap between the rich and the poor, which leads to social instability. Narrowing this gap has become one of the main agendas in many developing countries to satisfy the millennium goals proposed by the United Nations. Meanwhile, government expenditure is one crucial fiscal instrument as it contributes significantly to running the economy and overcoming economic cyclicality. In particular, governance/institutional can positively adjust the public debt — income inequality relationship in developing economies. The purpose of the study to identify the impact of institutional quality, public debt and their interaction on income inequality on a balanced data panel of 34 developing economies for the period 2002–2020. For monitoring endogenous problems and serial autocorrelation in empirical equations, two-step and one-step system GMM (Generalized Method of Moments) assessments are used. The results from the study show that public debt and the quality of institutions increase income inequality, but their interaction narrows it. These results seem to be counter-intuitive. Besides, education enhances income inequality in these economies. The results of the study provide some policy recommendations for reducing the inequalities in society through public debt and the quality of institutions in developing economies. Accordingly, governments in developing economies should use spending financed by public debt to support low-income individuals through social transfers throughout economic development. Importantly, they should spend more on education and health to help the poor improve their skills and knowledge, narrowing the income difference between the rich and the poor. In particular, they should be prudent in controlling and managing public debt to avoid a public debt crisis and social instability.

Exploring the Dynamic Relationships between Agricultural Production and Environmental Pollution: Evidence from a GMM-SYS Model in the Three Seas Initiative (3SI)

The Three Seas Initiative (3SI) is still an under-researched area and is particularly important due to historical circumstances and economic backwardness. A study was carried out to assess the impact of renewable energy and production made by the agricultural sector on CO2 emissions in 3SI countries between 2008 and 2020. The study used panel data analysis based on the two-step system’s generalized method of moments (GMM) and the Dumitrescu–Hurlin panel causality test. The results show that a 1% increase in the value added generated by agriculture increased CO2 emissions in the countries studied by 0.11%. In contrast, a 1% increase in GDP led to a 0.29% increase in CO2 emissions. Conversely, when renewable energy consumption increased by 1%, CO2 emissions fell by 0.25% in the countries studied. One way to reduce CO2 emissions from agricultural production in the short term is to increase the share of renewables, which incidentally is in line with EU action.

Market power and bank risks: insights from India and Bangladesh

PurposeThis study aims to investigate whether various types of risks faced by the publicly listed commercial banks of India and Bangladesh are driven by market power and provides comparative insights from both economies.Design/methodology/approachBy using the adjusted Lerner index to gauge bank market power and applying the generalised methods of moments (GMM) regression approach, the research delved into the relationship between bank market power and three distinct facets of risk across a sample of 26 publicly listed commercial banks in India and 22 listed banks in Bangladesh spanning from 2011 to 2022.FindingsThe results indicate that for Bangladesh, both “competition fragility” and “competition stability” viewpoints coexist simultaneously across all risk types, supporting a nonlinear relationship between market power and risk. However, in the Indian context, a nonlinear association exists only in the case of credit risk, while the relationship with insolvency risk is linear, substantiating the “competition fragility view”. Apart from market power and bank-specific variables, GDP growth rate has emerged as a prominent driver across all risk categories in both countries.Research limitations/implicationsThe filtration of banks is a limitation that might have influenced the outcomes. This study recommends that the Reserve Bank of India encourages further bank consolidation. Along the same line, Bangladesh Bank should closely oversee the growing competitive landscape. Furthermore, the regulators must monitor the elevated levels of non-performing loans to reduce credit risk so as to bolster the stability of their respective banking sectors.Originality/valueThis comparative study is the first attempt to analyse the market power and risk relationship and includes a novel bank-specific variable, i.e. technology, apart from other established variables.

Environmental, social and governance and financial performance nexus in South African listed firms

Background: Environmental, social and governance (ESG) factors have become topical in recent years because of climate change existential threat to humanity. There is, however, a limited understanding of how the firm’s ESG efforts affect firm outcomes.Aim: The aim of this study was to investigate the relationship between firm’s ESG indicators and the financial performance.Setting: The sample is drawn from Johannesburg Stock Exchange (JSE) listed companies based on data availability. South Africa is not only plagued by social ills and governance failures, but it is also one of the world’s largest emitters of greenhouse gases, making it an ideal laboratory for studying the ESG and firm performance nexus.Method: We utilized a dataset spanning the years 2012–2022, covering 67 JSE-listed firms. These panel data were analyzed using the two-step system generalised method of moments (GMM).Results: We found that the disaggregated ESG indexes have a positive, albeit insignificant impact on the financial performance. These findings hold even when financial and non-financial firms are examined separately.Conclusion: Policymakers, including standard setters and regulators, should encourage firms to be sincere on ESG efforts and avoid greenwashing.Contribution: The study employs a relatively robust estimation technique (two-step system GMM) over a relatively long period (2012–2012). Furthermore, the sectoral analysis of financial and non-financial firms adds to the body of literature and policy development.

Workers’ Remittances to Sub-Saharan Africa: Do Institutional Quality and Financial Development Matter?

This paper examines the effects of institutions and financial development on workers’ remittances in sub-Saharan Africa. To achieve the objectives, a two-step system generalized method of moment (GMM) was utilized on a panel dataset of 38 countries in the region from 2005 to 2022. Empirical findings from the study reveal that some institutional indicators, namely, control of corruption, government effectiveness, political stability and rule of law have a significant impact in attracting remittances to SSA. Further evidence reveals that financial development indicators notably domestic credit to the private sector and domestic credit to the private sector by banks have a significant impact on remittances inflow in the region. Financial development indicators are found to complement some of the institutional indicators, such as control of corruption, political stability, government effectiveness, and rule of law on the inflow of remittances to the region. Government efforts should be geared toward improving the institutional framework and ensuring financial market development to increase the amount of remittances inflow to the region.

Banking Sector Development and Bank Risk-Taking Behaviour: Evidence from Commercial and Non-commercial Banks in Tanzania

This study investigates the effect of banking sector development measured by domestic credit provided by banks to private sector as percentage of GDP on risk-taking behaviour of the banks in Tanzania, measured in terms of bank capitalization ratio. The relationship was observed using annual country-level and bank-level data from commercial and non-commercial banks operating in Tanzania from 2012 to 2021. A system GMM estimation technique was employed in the investigation. Our results found that the effects of banking sector development on bank risk measured in terms of bank capitalization ratio is homogeneous across commercial and non-commercial banks. This means the development in banking sector measured as credit to the private sector by banks percentage of GDP in Tanzania has significant positive effect on bank capitalization ratio. Hence, reduce bank risk of default. Nonetheless, the findings reveal further that the profitability of bank and bank size factors are significant positive and negative respectively in relation to bank capitalization ratio. The results are further robust to bank ownership status dummy variable (DOSF) and for country of originality of the banks (DCOF) used to investigate whether there will be significant change in the result or not. The results of the robustness test indicate that banking sector development has insignificant effects on capitalization ratio when banks categorized as domestic and foreign banks as well as when banks categorized as private and state-owned banks.

Comprehensive Board of Commissioner Diversity and Corporate Social Responsibility Disclosure in Indonesia

This study examines the effect of comprehensive board of commissioner diversity (BOC_DIV) and corporate responsibility (CSR) disclosure for listed companies in Indonesia from 2019 – 2020. The implementation of CSR is growing in emerging markets, including Indonesia. In the context of the dual board system in Indonesia, the role of the board of commissioner is vital to address the growing CSR issue through their monitoring and supervising functions. We based our study on Indonesian-listed firms across industries. However, we exclude the financial sector due to different policies. Multiple Regression is employed to investigate the relationship, and the Generalized Method of Moment (GMM) model is executed to identify whether our model falls into the endogeneity problem. The results showed that several Board of Commissioner characteristics (such as size, independence, and gender) are positively associated with CSR disclosure. After testing for the endogeneity problem, the findings remain similar. We examine several dimensions of the board of commissioner diversity on non-financial outcomes, especially CSR disclosure, in the context of developing countries where a dual board system is implemented.

Estimating the direct rebound effect for residential electricity use in seventeen European countries: Short and long-run perspectives

The energy saved by improving the building efficiency of European households may not be as much as expected due to a rebound effect. Based on Eurostat and World Bank annual panel data covering the period 1996–2020, this article develops dynamic panel approaches, a generalized method of moments, and first-difference specifications, to investigate the direct rebound effect of residential electricity consumption in selected European countries. Instrumental variable techniques are used to tackle the reverse causality of the electricity price in a demand model. Estimates of the direct rebound effect in residential electricity use are 18% in the short-run and 43% in the long-run. Our findings reject the hypothesis of a backfire effect in residential electricity demand. They have important implications for policy makers, suggesting the need for smart policies that consider energy consumption behaviors and decision-making processes among various households.

Bank ownership and credit risk: an empirical study of Indonesian Islamic local banks

Purpose This study aims to determine the effect of bank ownership on the credit risk of Indonesian Islamic local banks (ILBs). Design/methodology/approach This study uses the system generalized method of moments (GMM) estimation technique with a sample of 155 Islamic local banks in Indonesia from 2012 to 2019. Findings The results show that commissioner board (D.COW) ownership has a negative effect on credit risk. This indicates that an increase in the number of shares of Islamic local banks owned by the commissioner board reduces credit risk. On the other hand, government ownership (D.GOW), the Sharia supervisory board (D.SOW) and the director board (D.DOW) do not affect credit risk. Practical implications The government, Sharia supervisory board and director board need opportunities to easily own more Islamic local bank shares. Therefore, the provisions regarding the share ownership rights of the government, Sharia supervisory board and director board need to be improved to increase their role in reducing credit risk. Originality/value Previous researchers have not studied the effect of government ownership, the commissioner board, the Sharia supervisory board and the ownership of directors on credit risk at the ILB in Indonesia.