Generalized Method Of Moments Estimation Technique Research Articles

Minimizing COVID-19 Transmission Cases: Do Policies and Institutions Matter?

This paper examines the effects of institutional factors and government policy responses on COVID‐19 infection cases. It applies the Random Effects (RE) and GMM (Generalized Method of Moments) estimation techniques to panel data to explore the relationship between COVID‐19 cases on the one hand and institutions and government policy responses on the other. The paper finds that the nature and timing of policy responses matter and that institutions play a crucial role in explaining observed infection cases across countries. The results also indicate that high population density and previous experience with infectious diseases are important factors in explaining infection cases across countries. One of the policy implications of our findings is the importance of timely policy intervention at the national level in reducing infection cases.

Bank maturity, income diversification, and bank stability

The purpose of this research is to examine the influence of bank life cycle or bank maturity on income diversification (ID) and stability. In addition, this research investigates the ID relationship with bank stability. Drawing on the dynamic resource-based view and modern portfolio theory, this research examines the influence of a paramount internal factor i.e. bank life cycle or bank maturity on income diversification (ID) and stability consequence. Data were collected from the Pakistani’s commercial banks’ financial statements over the period 2005 to 2019. This research relied on the fixed effect and generalized method of moments (GMM) model to empirically test the proposed relationships. Core findings of the research reveal that bank maturity leads to enhanced ID and ID strongly influences the bank stability consequence, moreover, research findings are robust to use different measures of bank stability and GMM estimation techniques. To the authors’ best knowledge, this research is the first to report specific evidence about bank maturity as an internal driver of income diversification and stability and advances the literature seeking to understand the determinants of ID. This research also shows managers to recognize the importance of internal drivers to diversify effectively into non-interest income, and how such an effective ID translates into stability consequence.

Entrepreneurial Behavior, Institutional Trust and National Innovation: A Macro-Level Empirical Study

Schumpeterian fundamentalism supports the argument that innovation is a dynamic process and novelties are initiated through economic agents namely the entrepreneurs; vis-à-vis a strong institutional environment is required to facilitate the innovation process. Therefore, the present study undertakes the macro-level empirical analysis on determining the impact of entrepreneurial behavior, property rights and state effectiveness on country’s innovation. The data is of panel nature consisting of 55 countries and a time period from 2010 to 2016. The empirical analysis is done using system GMM (Generalized Method of Moments) estimation technique. The study shows that the fear of failure rate and total early stage entrepreneurs reduces innovation in a country whereas there is a significant positive relationship between established business entrepreneurs and innovation. However, perceived opportunities have an insignificant impact. This means that it is not inevitable that opportunities necessary trigger innovation. In addition, the study shows that property rights play an integral role in developing institutional trust which boosts entrepreneurialism to undertake innovative venture. On the other hand, state effectiveness is negatively related to innovation i.e. institutional trust is brought down in fragile countries which retard country’s innovation.

The impact of leverage on discretionary investment: African evidence

PurposeThe purpose of this paper is to explore the impact of leverage on firms’ discretionary investment in Africa.Design/methodology/approachThe authors employ a dynamic panel data model estimated with generalised method of moments (GMM) estimation techniques on the panel data of listed African non-financial firms. A dynamic model and the generalised methods of moments estimations are handy in controlling for unobserved heterogeneity, endogeneity, autocorrelation, heteroscedasticity, etc.FindingsIn spite of different settings, markets, leverage levels and methodologies, the authors found evidence that leverage constrains investment in African firms. The negative impact is more pronounced in firms with low-growth opportunities than in firms with high-growth opportunities. The results are inclined to the theory that leverage plays a disciplinary role to avoid overinvestment.Research limitations/implicationsAfrican firms’ investment policy does not solely depend on the neoclassical fundamentals determinants of profitability, net worth and cash flows. Financing strategy also has a considerable bearing on the investment policy. The results provide evidence that leverage is a negative externality to the firm’s discretional investment policy for both lowly levered and highly leveraged firms. African firms’ should consider maintaining their low debt levels and rely more on internally generated funds so as not to suppress any available cash flows to interest payments and loan covenants from debt holders.Originality/valueThe study contributes to the literature on investment and financial leverage by the authors providing evidence from Africa, a developing continent, that has not been explored. It shows how conservative leverage levels of African firms, which have been reported to be rising, are impacting on investments. Pertaining to empirical methodology, the authors employ a dynamic panel data model, the GMM estimation technique, which is robust in controlling endogeneity, and a possible bi-directional causality between leverage and investment which have not been used in literature. The study also enables a comparison of the effect of high leverage and low leverage on firm’s discretional investment.

Dynamic endogeneity and corporate governance-performance relationship

PurposeThe purpose of this paper is to examine the relationship between corporate governance (CG) and microfinance institution (MFI) performance, using a dynamic panel generalised method of moments (GMM) estimator to mitigate the serious issues with endogeneity.Design/methodology/approachInconsistent findings and a general lack of empirical results for the microfinance industry leave an unclear message regarding the impacts of CG on MFI performance, especially in emerging economies. The authors use GMM estimation techniques to examine whether CG has an influence on MFI performance.FindingsThis study confirms that the MFIs’ contemporaneous performance and CG characteristics are statistically significantly positively linked with their past performance. This study finds statistically significant governance effects on MFI performance, including the presence of international directors and/or donor representatives on the board, client representatives on the board, percentage of non-executive directors and the quality of the national governance system.Practical implicationsThese findings provide some insights for policy-makers and practitioners to develop suitable policies and guidelines to streamline MFIs’ operations in emerging countries. Moreover, national and international investors and donors may use these finding as a benchmark for their investment and funding decisions.Originality/valueThis paper is the first to estimate the CG and performance relationship of MFIs in a dynamic framework by applying the GMM estimation method. This approach improves upon traditional estimation methods by controlling the likely sources of endogeneity. Further, this paper examines whether quality of national-level governance characteristics is related to performance measures of profitability and outreach of MFIs.