Generalized Method Of Moments Research Articles

Effects of board gender and foreign directorship on the financial sustainability of Saudi listed firms: Does family ownership matter?

This study investigates how family ownership may influence the effects of board gender and foreign directorship on the financial sustainability. The panel data of 103 Saudi non-financial listed companies from 2013 to 2022 was analyzed using fixed effects, and the generalized method of moments (GMM) was used for robustness test. The research findings suggest a strong and positive effect of foreign directorship on financial sustainability, consistent with the resource dependency view and agency theory. However, board gender exerts a negative and significant influence, contradicting existing theories. Further, the moderation results show that family ownership positively moderates the effects of both board gender and foreign directorship on financial sustainability. This positive moderating result supports the agency theory’s argument that robust and stringent monitoring of corporate ownership may complement boards’ functions and boost organizational efficiency. The policy decision of the findings is that setting corporate boards with a considerable ratio of foreign directors may lead to sustainable performance. Also, it implies that family ownership seems to be an essential mechanism that can neutralize the adverse effects of boardroom diversity on outcomes.

Rethinking poverty: An econometric analysis of the role of ICT poverty in a global context

In an age of increasing digitalization, it is imperative for policymakers and researchers to grasp the profound impact of Information and Communication Technologies (ICTs) on poverty. This paper investigates the relationship between ICT poverty and the absolute poverty index across the Global South and North from 2012 to 2022. Furthermore, it assesses the influence of ICT poverty on the risk of poverty or social exclusion in various geographic areas—cities, suburbs/towns, and rural regions—across 28 European countries. Employing a range of panel models, such as fixed/random effects and the Generalized Method of Moments (GMM), the study uncovers significant positive associations between ICT poverty and absolute poverty and the risk of poverty or social exclusion across all geographic areas. Our research indicates that policies aimed at reducing ICT inequality—commonly known as the “digital divide"—are more effective in alleviating poverty than those solely focused on promoting ICT development. Additionally, the study introduces a new policy framework, the ICTs-PGI Triangle, which offers a roadmap for policymakers to mitigate ICT poverty in both the Global South and North. The empirical results highlight the importance of providing equitable digital access and literacy, particularly in rural and marginalized areas, for sustainable poverty reduction. Therefore, this study provides valuable insights into the intricate interplay between digitalization and poverty alleviation strategies, addressing a significant gap in the current literature.

Role of financial development and inclusivity in moderating the environmental effects of human development

The era of prioritizing economic growth, regardless of its overall impact, has ended. An integrative approach to global development that is increasingly human-centered and environmentally friendly, as well as promotes social resilience must be considered. This study assesses the beneficial role of a mature and inclusive financial architecture in environmental quality, emphasizing the impact of human development. Findings reveal that financial development mitigates the overall negative impact of human development on environmental degradation, as measured by carbon emissions and ecological footprint, in developed countries. This study raises awareness regarding the impact of human development on environmental degradation in 25 European countries between 1996 and 2019. It employs the two-step Generalized Method of Moments (GMM) as the main estimator to reveal the empirical effects, with the Driscoll–Kraay estimator serving as a robustness test. Furthermore, we explore the significance of economic freedom, renewable energy, and green innovation in curbing environmental impact.

Stock market responses to economic sanctions: Evaluating the roles of national reserves and financial market access

Economic sanctions significantly influence stock market capitalization and have critical implications for the national economy. This study investigates the impact of economic sanctions on stock market capitalization, focusing on the roles of national reserves and financial market access in mitigating these effects, utilizing a sample of 87 countries from 2000 to 2021 and employing a two-step system generalized method of moments (GMM) approach to analyze panel data. The findings reveal that economic sanctions, including trade and financial sanctions, significantly reduce stock market capitalization. However, this negative impact diminishes over time as markets adapt. Moreover, higher national reserves and enhanced financial market accessibility can mitigate the adverse effects of sanctions. Case studies in Russia, Iran, China, and Ukraine further validate these results. This study refines economic models, such as the capital asset pricing model (CAPM) and country risk model (CRM), by including sanction intensity, national reserves, and financial market accessibility, offering valuable insights for policymakers and investors dealing with international sanctions.

Horizontal and vertical foreign direct investment linkages, absorptive capacity and domestic investment: evidence from Indonesian plant-level data

PurposeThis study examines the effect of horizontal and vertical foreign direct investment (FDI) linkages on the investment decisions of domestic plants. It explores this link for plants in a developing country, where the dynamics of FDI spillovers on domestic investment choices are distinct from those in developed countries. It also adds to the literature by examining the role the absorptive capacity of plants plays in this nexus, enriching our understanding of the interaction between FDI and the investment choices of domestic plants and providing insights for policymakers and managers seeking to maximize the positive effects of FDI spillovers.Design/methodology/approachThis study specifies the dynamic investment equation using the Euler and Q models. This equation is estimated using the first-difference and system generalized method of moments GMM estimators, which allow us to address persistency, endogeneity and unobserved plant-specific effects. FDI exposure proxy, calculated by weighing the FDI engagement variable by firm size, captures the strength of foreign equity participation in an industry and time. Input–output (IO) tables are used to calculate the proxies for horizontal and vertical (backward and forward) FDI. Total factor productivity is calculated using a method advocated by Olley and Pakes (1996) that allows us to control for selection and simultaneity.FindingsWe find that FDI inflows into both the domestic plants’ own industry and the input-supplying industry significantly boost the capital accumulation of the average domestic plants. Differentiating plants based on their absorptive capacities reveals that the presence of foreign firms significantly increases capital deepening for domestic plants with high absorptive capacity within their own industry (horizontal linkage) and in industries that supply inputs to the FDI-exposed industry (backward linkage). However, it leads to a decrease in capital deepening for high absorptive capacity domestic plants in industries using inputs produced by the industry exposed to FDI (forward linkage).Research limitations/implicationsThese findings have implications for policymakers and managers who aim to design incentives to maximize the positive spillover effect of horizontal and vertical FDI linkages on the capital deepening of domestic plants. Exploring additional mechanisms that could play a role in this nexus, separately for plants in different industries (such as the industries in which the country has a comparative advantage), may be fruitful.Originality/valueTo our knowledge, the relationship between the investment behavior of the domestic plants and FDI linkages has not been examined for a developing country. It is useful to explore this link in developing countries, as the investment choices of plants in these nations may be impacted differently by FDI spillovers than those in advanced nations. This study further contributes to the literature by investigating whether the plants’ absorptive capacity affects the nexus between FDI linkages and investment decisions of the domestic plants. The findings are valuable for policymakers and managers who aim to increase plants’ capital accumulation in developing countries.

Study on the influence of global tourism development on the upgrading of county industrial structure

Taking the global tourism as an important grasp, promoting the tourism to the industrial structure optimization and economic development of the driving force, is conducive to the high-quality development of China's county economy. Based on the panel data of 255 demonstration counties of global tourism in 30 provinces in China from 2012 to 2020, and on the basis of analyzing the correlation between the two, this paper empirically tests the relationship between the development of global tourism and the upgrading of county industrial structure by using static panel model and systematic GMM estimation method. It is found that the development of global tourism has a positive and significant impact on the upgrading of county industrial structure, and there are significant differences in this effect between the eastern, central and western regions of China. Therefore, this paper puts forward some countermeasures and suggestions to promote the upgrading of county industrial structure through the development of global tourism.

Determinants of MSMES’ credit access: Evidence from Indonesian banks

Credit is an important component in developing micro, small, and medium enterprises (MSMEs), as it can boost a country’s economy, help boost the production capacity of MSMEs, create jobs, and reduce poverty. This study aims to examine the characteristics of banks in Indonesia that influence lending to micro, small, and medium enterprises by adopting agency theory that explains the relationship between lenders (banks) and borrowers (MSMEs) as agents and principals. Data were taken from quarterly financial reports of banks in Indonesia. There are 42 sample banks from 2010 to 2022, so the data used are 2,182 observations. Data analysis uses a fixed effect model with robust standard errors. The results show that operating costs do not influence credit access for MSMEs or medium-sized enterprises. Bank stability has an impact on increasing MSME credit access. High bank capital also increases MSME credit access. Robustness tests were also conducted using the general method of moments. The results were consistent with the main model. The implication is that cost management theory and credit decision-making need to consider differences in business scale. The results also further strengthen the argument that bank stability is an important factor that can improve access to credit for small and medium enterprises. AcknowledgmentsAppreciation is given to the Doctoral program Universitas Sebelas Maret Surakarta Indonesia and the Institute of Research and Community Services (LPPM) Unisnu Jepara Indonesia, which has supported this research.

Assessing the Impact of Federal Reserve Policies on Equity Market Valuations: An Instrumental Variables Approach

This study investigates the impact of Central Bank interventions on the pricing dynamics of select stock markets. The research utilizes the instrumental variables three-stage least square (3SLS) model approach. It analyses the effects of variations in the Federal Reserve’s balance sheet size across three distinct intervention scenarios: the 2008–2013 Great Recession, the 2020–2021 COVID-19 pandemic periods, and an overarching analysis spanning these timelines. Our methodology includes estimations of the Seemingly Unrelated Regression Equations (SURE), and the results are robust under the two-step Generalized Method of Moments (GMM). Our findings indicate that changes in the size of the Fed’s balance sheet correlate significantly with the pricing of principal U.S. equity market indices. This correlation reflects a time-dependent effect emanating from the Fed’s balance sheet expansion, marking a growing divergence between the adaptability of pricing mechanisms in equity and debt markets. Notably, the Federal Reserve’s interventions during the COVID-19 crisis are associated with an increase of approximately 0.0403 basis points per billion in treasury yields. This research makes a significant contribution to the understanding of financial asset pricing, particularly by elucidating the extent to which interventions in government debt securities engender price distortions in certain equity markets.

Determinants of foreign direct investment in SADC region: Case of financial development, institutions and openness

Background: Countries in the Southern African Development Community (SADC) region have experienced low growth coupled with high levels of poverty and inequality. Economic growth has been touted as one of the major factors to deal with these problems. However, the lack of financial resources has hampered the efforts to achieve high levels of growth. This has therefore resulted in the countries putting much effort on attracting foreign capital.Aim: The study aims to investigate the extent to which financial development (FSD), financial openness, and institutional quality determine the inflow of foreign direct investment (FDI) in the SADC region.Setting: The study focuses on 15 countries in the SADC region from 2008 to 2022.Method: The study employs the Generalised Method of Moments (GMM) technique given the problem of endogeneity between the variables of interest.Results: The findings from the study indicate that FSD and financial openness are important factors determining the flow of FDI to the SADC region. On the other hand, the effect of institutions was found to be significant when taking into account the state of FSD and financial openness.Conclusion: Policymakers are encouraged to focus on enhancing institutional frameworks, promoting FSD, and increasing financial openness to optimise capital inflows.Contribution: The study contributes to the available studies by incorporating the role that is played by institutional quality and financial openness to the modelling. This becomes important as the region aims at attracting more foreign capital so as to improve growth as domestic capital supply falls short of domestic capital demand.

Ekonomiczne determinanty popytu na ubezpieczenia na życie – ujęcie regionalne

Insurance has various functions in the economic and social spheres. Life insurance is a specific type of insurance, offered in the form of individual or group insurance. Research on insurance market at regional level is undertaken relatively rarely. The aim of the study presented in this paper is to identify economic factors determining the level of demand for individual and group life insurance on regional insurance markets. Dynamic econometric models for panel data (GMM estimator) with demand expressed in gross written premium per capita (life insurance density) have been used in the analysis. The research was carried out on the basis of data at voivodship level for the period of 2017–2021 from Statistics Poland and the Polish Financial Supervision Authority. The regression analysis demonstrated that an improving economic situation of the region and households’ growing disposable income positively affected demand for life insurance, while a poor situation on the labor market (indicated by the unemployment rate) had a reverse effect. Individual insurance demand responded stronger to changes in disposable income and the unemployment rate, whereas group insurance demand was more sensitive to changes in the region's economic situation. The level of insurance consumption observed in a given period is determined by that observed in the previous period, which indicates the phenomena occurring on this market are of a relatively stable character.

The Role of Reserves in Mitigating Sanctions’ Impact on Economic Growth

ABSTRACT As global risks mount, national reserves act as a nation’s frontline defense, guarding economic stability. This study investigates the role of national reserves in mitigating the impact of international sanctions on economic growth, analyzing 131 countries from 2000 to 2022. Using econometric methods, including two-step Generalized Method of Moments (GMM) and fixed effects models, we examine how reserves relative to external debt help buffer economies against sanctions. The findings show that economic sanctions significantly hinder growth, with trade sanctions being the most damaging. Reserves act as a key buffer, particularly in the short term, though their effectiveness decreases over time. Countries with stronger reserve adequacy are better equipped to manage the challenges of sanctions. The study highlights the importance of maintaining robust reserves and implementing broader strategies like economic diversification and structural reforms for long-term resilience. These insights are valuable for policymakers navigating sanctions-related economic challenges.

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

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

Linder hypothesis and India’s services

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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