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.

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 (MMQREG), machine learning-based Kernel-based Regularized Least Squares (KRLS), and Generalized Method of Moments (GMM) Methods, have been utilized in this study. MMQREG and KRLS are both estimators that examine the relationship between variables in all ranges, 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.

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.

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

Purpose This 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/approach By 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. Findings The 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/implications The 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/value This 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.

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.

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.

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.

The role of green finance, environmental benefits, fintech development, and natural resource management in advancing sustainability

Green finance, generally considered as financial support for green growth, significantly reduces greenhouse gas and air pollutant emissions. Green finance in agriculture, green buildings and other green projects should increase the economic development of a country. Rapid advances in digital technology are revolutionizing the financial landscape. The rise of fintech has the potential to make financial systems more efficient and competitive and broaden financial inclusion. With greater technological complexity, however, fintech also brings potential systemic risks. Thus, using a panel dataset from the G7 and E7 countries, this investigation explores the interplay between green finance, environmental benefits, total natural resource management, fintech and economic sustainability. The panel dataset is subject to rigorous estimation techniques, including quantile regression and the generalized method of moments (GMM) for long-run estimation. The cointegrations among the variables are validated using the Johansen Fisher panel test. In the long-run estimation, the quantile regression shows significant influences of environmental benefits and total natural resource management. The GMM strengthens the analysis due to its effectiveness and reliability in the presence of heteroskedasticity. The outcomes of the GMM technique support the negative and significant impact of fintech, green finance and total natural resource management on GDP, while environmental benefits are significantly positively linked with GDP. The study enhances our understanding of the nexus between environmental factors and economic sustainability. Therefore, it has value in terms of its practical implications, offering policymakers insights for enhancing economic sustainability. Despite the significant contribution of the study, the limitations are acknowledged, which provide future researchers opportunities to expand on the topic.

The relationship between foreign direct investment and financial inclusion in MENA countries: Evidence from the General Method of Moments

The study delves into the nuanced interaction between foreign direct investment (FDI) and financial inclusion in the MENA region, spanning the years 2003 to 2022 and employing the General Method of Moments for rigorous analysis. Its primary objectives are to elucidate how financial inclusion influences FDI and to examine the mediating role of economic growth and inflation as key factors. Key findings reveal a robust positive correlation between financial inclusion and FDI inflows within MENA countries. Specifically, the study uncovers significant relationships between FDI and the various dimensions of financial inclusion, including access, availability, and usage. This underscores the pivotal role of inclusive financial systems in attracting foreign investment. Moreover, the study highlights the symbiotic relationship between economic growth and FDI, indicating that heightened levels of economic prosperity attract greater investment. This underscores the importance of fostering conducive economic conditions to attract foreign capital. Furthermore, the study underscores the critical role of financial inclusion in shaping monetary policy and mitigating investment risks. By facilitating access to capital and reducing uncertainty, financial inclusion promotes transparency and stability, thereby enhancing the attractiveness of foreign markets for investment.

Does the Too-Big-To-Fail status affect depositor’s discipline: a Gaussian mixture model algorithm approach

PurposeThis study empirically demonstrates a contradiction between pillar 3 of Basel norms III and the designation of Systemically Important Banks (SIBs), also known as Too Big to Fail (TBTF). The objective of this study is threefold, which has been approached in a phased manner. The first is to determine the systemic importance of the banks under study; second, to examine if market discipline exists at different levels of systemic importance of banks and lastly, to examine if the strength of market discipline varies at different levels of systemic importance.Design/methodology/approachThis study is based on all the public and private sector banks operating in the Indian banking sector. The Gaussian Mixture Model algorithm has been utilized to classify banks into distinct levels of systemic importance. Thereafter, market discipline has been observed by analyzing depositors' sentiments toward banks' risk (CAMEL indicators). The analysis has been performed by employing the system Generalized Method of Moments (GMM) to estimate models with different dependent variables.FindingsThe findings affirm the existence of market discipline across all levels of systemic importance. However, the strength of market discipline varies with the systemic importance of the banks, with weak market discipline being a negative externality of the SIBs designation.Originality/valueBy employing the Gaussian Mixture Model algorithm to develop a framework for categorizing banks on the basis of their systemic importance, this study is the first to go beyond the conventional method as outlined by the Reserve Bank of India (RBI).

Enterprises’ Emissions Intensity and Financial Performance in Serbia: The Case Study of Wastewater

Untreated industrial and municipal wastewater is the key factor that leads to water pollution in Serbia. The aim of the paper is to examine the impact of environmental performance (using eco-intensity indicators) of enterprises on their profitability in the period 2011-2020 in Serbia in the area of wastewater. Apart from using the panel data technique in the paper, the Generalized Method of Moments (GMM) is also used to estimate the parameters in the model. The results demonstrate that if the eco-intensity indicator increases, the profitability of an enterprise increases significantly, whereas the profitability of an enterprise decreases with the increase in the size of an enterprise. According to the results of the evaluated model, the capital intensity variable has no influence on the profitability of an enterprise. Additionally, it has been determined that the coefficient with the eco-intensity indicator is quite large, indicating the poor eco-efficiency of Serbian enterprises in the area of wastewater.

Corporate governance and corporate carbon disclosures: The moderating role of earnings management

AbstractThis research aims to explore the relationship between corporate governance (CG) and carbon disclosure (CD) and the moderating role of earnings management (EM) in this relationship. The model was built based on legitimacy theory, upper echelons theory, and agency theory. We employed a two‐step generalized method of moments (GMM) regression and conducted robust tests to reaffirm the results using panel data from 134 listed companies in the Vietnamese stock market from 2015 to 2022. Our findings indicate that larger board sizes, boards with more independent members or the presence of a CEO who concurrently serves as the chairman of the board can potentially decrease the likelihood of CD, while companies with a higher proportion of female board members or regular board meetings may tend to publish more carbon information. Furthermore, EM can moderate the relationship between CG and CD, and this variable exhibits high reliability in the model. This research adds to the vast body of existing knowledge about the effectiveness of CG by investigating how different dimensions of CG affect corporate CDs in Vietnam, especially, to the best of the authors' knowledge, this is the first research attempting to provide the empirical result of the moderating role of EM in the relationship between CG and corporate CDs.

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

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

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

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

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

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

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

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