Generalized Method Of Moments Research Articles

The impact of fintech on the profitability of Chinese commercial banks

This study assesses the transformative impact of financial technology (fintech) on the profitability of Chinese commercial banks, with a focus on addressing the challenge of endogeneity in financial data analysis. The study uses the systematic generalized method of moments (GMM) to compare the results with those from fixed-effects models in order to make the findings more reliable. The results reveal that fintech significantly impacts bank profitability, predominantly in a negative manner. This underscores the pressing need for banks to adapt and innovate, responding proactively to the fintech disruption. The practical implications of this study suggest that banks should not only invest in research and development within fintech but also tailor strategic responses according to bank types and establish a comprehensive financial services ecosystem to bolster their competitive edge and profitability. The findings are critical for bank executives and policymakers aiming to navigate the challenges posed by fintech innovations.

Urbanization as a catalyst for structural transformation in developing countries: The mediating impact of foreign direct investment

This article analyzes the link between urbanization and the process of structural transformation (ST) in developing countries, taking into account the mediating role that FDI can play. We use secondary data from 2000 to 2023 to determine if FDI positively or negatively influences the ST process in these countries, thereby, altering urbanization patterns. By estimating the Generalized Method of Moments (GMM), the study explores the relationship between urbanization, the ST process, and the mediating role played by FDI. In addition, it takes into account control variables such as gross fixed capital formation (GFCF), gross domestic product per capita (GDPPC), and diversification of production structure (DPS) to analyze their effect on urbanization and, more specifically, on the ST process. The econometric results showed a negative correlation between FDI flows and urbanization, demonstrating that FDI could hinder the success of the ST process in developing countries. On the contrary, econometric results showed that the control variables, GFCF, GDPPC, and DPS, positively influence urbanization in developing countries, indicating that these variables are more conducive to a successful ST process than FDI. Based on the econometric results, policymakers in developing countries are called upon to strengthen urbanization in these countries, by encouraging local investment and the diversification and sophistication of production and export structures, rather than relying solely on FDI. Over the period studied, FDI has not contributed as expected to advancing the urbanization process, a crucial element in the ST process in developing countries.

Examining the effects of national intellectual capital on economic growth: does digital services trade restrictiveness matter?

Purpose The moderating role of digital services trade restrictiveness to the effects of national intellectual capital on economic growth has been largely ignored in the existing literature. As such, this paper aims to examine how national intellectual capital and digital services trade restrictiveness affect economic growth. In addition, the moderating role of digital services trade restrictiveness in the relationship between national intellectual capital and economic growth is also examined. Design/methodology/approach In this study, a sample comprising 62 countries worldwide is used. The national intellectual capital for each country is computed using the index of national intellectual capital. Data pertaining to digital services trade restrictiveness are extracted from the digital services trade restrictiveness index (OECD Statistics on International Trade in Services database). To ensure the robustness of the findings, the generalized method of moments (GMM) is used in the analysis. Findings The findings of this study confirm that national intellectual capital supports economic growth. Accumulating intellectual capital at the national level plays an essential role in supporting economic growth. The authors also find evidence to confirm that digital services trade restrictiveness negatively affects economic growth, particularly for high-income and lower-middle-income countries. Interestingly, digital services trade restrictiveness deteriorates economic growth across countries globally, except for upper-middle-income countries, with a weak effect. The empirical results also confirm that the joint effects between national intellectual capital and digital services trade restrictiveness are negative and significant. As such, findings from our analysis suggest that digital services trade restrictiveness moderates the relationship between national intellectual capital and economic growth. Practical implications The findings of this study provide valuable implications for policymakers to formulate and implement policies aiming to improve national intellectual capital to support sustainable economic growth. In addition, limiting digital services trade restrictiveness across countries appears to provide both direct and indirect effects in enhancing sustainable economic growth. Originality/value To the best of the authors’ knowledge, this is the first empirical study conducted to examine the moderating role of digital services trade restrictiveness on the national intellectual capital – economic growth nexus.

Estimating Social Effects with Randomized and Observational Network Data

Abstract This paper introduces an innovative approach to identifying and estimating the parameters of interest in the widely recognized linear-in-means regression model under conditions where the initial randomization of peers determines the observed network. We assert that peers who are initially randomized do not produce social effects. However, after randomization, agents can endogenously develop significant connections that potentially generate peer influences. We present a moment condition that compiles local heterogeneous identifying information for all agents within the population. Under the assumption of ψ-dependence in the endogenous network space, we propose a Generalized Method of Moments (GMM) estimator, which is proven to be consistent, asymptotically normally distributed, and straightforward to implement using commonly available statistical software due to its closed-form expression. Monte Carlo simulations demonstrate the GMM estimator’s strong small-sample performance. An empirical analysis utilizing data from Hong Kong high school students reveals substantial positive spillover effects on math test scores among study partners in our sample, provided that their seatmates were exogenously assigned by their teachers.

The Impact of Cash Liquidity and Financial Leverage on The Performance of Iraqi Banks: A Comparative Study Between Islamic and Conventional Banks

Degree of financial leverage refers to the percentage of bank assets financed through debt, which banks must employ to achieve returns and cover costs, as well as the availability of cash at maturity. Therefore, the problem of the study arises in how the indicators of leverage and cash liquidity affect the indicators of financial performance in the Iraqi banking sector. That is why the study aims to use econometrics to demonstrate the impact of leverage and cash liquidity on the financial performance indicators represented by return on assets (ROA) and net profit margin (NPM) for a sample of 38 conventional and Islamic banks for the period 2010-2022. The Dynamic Panel Data methodology was used to determine the relationship between variables, which combines time series and cross-sectional, precisely the generalized moment method (GMM). Results show that financial leverage negatively and significantly impacts ROA and NPM indicators in the total sample and Islamic and conventional banks, except for the positive relationship with ROA in conventional banks. The results also showed the positive impact of cash liquidity on ROA and NPM indicators in the total sample and Islamic and conventional banks, except for its negative impact on ROA indicators in conventional banks. The results also showed the negative impact of the cash credit (cash credit to total assets ratio) on ROA and NPM indicators in the total sample and Islamic and conventional banks. Paper type: Research paper

Liquidity and credit risks during the COVID-19 pandemic: evidence from a dual banking system

Purpose The purpose of this paper is to investigate the relationship between liquidity risk and credit risk of Islamic and conventional banks in a predominantly Muslim country (Indonesia) adopting a dual banking system. Design/methodology/approach To investigate liquidity-credit risk nexus, this study used a sample of 72 Islamic and conventional banks in Indonesia for a period between 2019 Q4 and 2022 Q1. This paper used a generalized method of moments (GMM) and generalized least square (GLS) estimators. Findings This study found that there is a nonlinear (inverted U-shaped) relationship between liquidity risk and credit risk in dual banking system. Liquidity risk was found to increase credit risk if it is below the optimal threshold, and above this optimal threshold, liquidity risk begins to decrease credit risk, both before and during the pandemic. In addition, the impact of liquidity risk on credit risk is higher in Islamic banks compared to conventional banks. Originality/value This paper reinvestigates the puzzle between credit risk and liquidity risk by taking a sample of a dual banking system country and by considering the period of the COVID-19 pandemic. To the authors’ knowledge, this approach has not been addressed in prior empirical studies.

Inquisitive exploration of green finance, social finance, and capital formation in shaping economic development: insights from BRICS Countries

The significance of democratic commitment is highlighted on a global scale by the importance placed on offering a multitude of chances to establish enduring ecosystems and foster economic progress. Social finance, capital formation, and green finance have recently received a lot of attention from this perspective. Past studies mainly examined social finance and green finance in isolation. When investigating the individual impact of these important variables on economic growth in the occurrence of important events like the COVID-19 pandemic and other environmental pollution issues, most studies have mainly focused on developed countries, ultimately ignoring the different dynamics in emerging economies. The purpose of the research is to investigate the joint interaction between social finance (Social Impact Bonds), capital formation, and green finance (green loans, green investments, and green security) on economic development in BRICS economies. This research employed a longitudinal dataset from 2013 to 2023. The generalized method of moments (GMM) and fixed effect model (FEM) were employed in this research as statistical techniques for estimating parameters. The findings of this study revealed a positive joint relationship between green finance, capital formation, and social financing on economic development of BRICS economies. Therefore, measures that jointly promote social and green finance amidst environmental challenges or economic risks could present opportunities to mitigate the vulnerability of a country's economic prosperity. This research will surely guide policymakers in developing economies on how to give considerable attention to sustainable aspects while formulating policies and strategies aimed at economic development.

THE IMPACT OF GREEN FINANCE ON BANKING PERFORMANCE IN INDONESIA

Green Finance refers to financial practices that can be described through financial services and products that take environmental sustainability to support sustainable development. The role of green finance is to connect financial goals with the environment to encourage inclusive economic growth. One form of green finance implementation is in financial institutions, especially banking. This study aims to analyze the impact of green finance implementation in the banking sector on banking performance as proxied by the profitability ratio in the 2018-2022 period. The Generalized Method of Moments (GMM) dynamic panel is used. The Green Daily Operation (GDO) and Green Finance Policy (GFP) variables indicate the implementation of green finance in banking. Other independent variables use banking performance ratios consisting of the capital adequacy ratio, non-performing loans, and the bank's operational efficiency ratio. The study results show that green finance represented by implementing GFP can increase profitability, while GDO does not significantly affect banks' profitability in Indonesia. Furthermore, the internal banking ratio that is not significant to profitability is the capital adequacy ratio, while increasing non-performing loans and operational efficiency ratio significantly negatively impacts bank performance because it reduces profitability. This research supports applying the green concept in the banking sector to improve sustainable bank performance.

Women digital financial inclusion and economic growth in Nigeria

PurposeThis article analyses the trend in women digital financial inclusion in Nigeria using some digital financial inclusion indicators obtained from the global Findex database for the year 2014, 2017 and 2021. The study also analyses the relationship between women digital financial inclusion and economic growth.Design/methodology/approachThe data were analysed using the two-stage least squares (2SLS) and generalised method of moments (GMM) regression estimation methods. The women digital financial inclusion indicators are the percentage of women who (1) own a mobile money account, (2) made a digital payment, (3) received digital payments, (4) made or received a digital payment, (5) own a credit card and (6) own a debit card.FindingsThe trend analysis shows a sustained, although small, improvement in women mobile money account ownership during the period, while the other indicators witnessed a decrease in 2017 and an increase in 2021, except for women credit card ownership which remained at the same level during the period examined. There is a significant positive relationship between women digital financial inclusion and economic growth. Internet usage has a significant positive effect on women digital financial inclusion in Nigeria.Practical implicationsGreater digital financial inclusion for women can accelerate economic growth in Nigeria. Policymakers should encourage investment in fintech and broaden access to the Internet to increase women digital financial inclusion and economic growth in Nigeria. Policymakers and practitioners in Nigeria should also work collaboratively to increase digital financial inclusion for women due to its potential to increase economic growth in Nigeria.Originality/valueExisting studies did not analyse the trends in women digital financial inclusion. Existing studies did not empirically analyse the impact of women digital financial inclusion on economic growth in Nigeria. The present study fills this gap in the literature.

Consumption patterns of indebted households: unravelling the relevance of fiscal policy

AbstractWe have investigated the influence of fiscal instruments, notably taxes and government spending, on household consumption in two different samples and two measures of household debt to provide a comprehensive analysis of the topic. We used dynamic panel models and the Generalised Method of Moments (GMM) approach for 24 and 32 advanced and emerging countries from 1995 to 2020. Our findings show that fiscal impulses increase private consumption. However, when households are highly indebted, the effects are different, and the increase in public spending or the reduced taxes discourages household consumption compared to the baseline (lower debt) group. These results suggest a precautionary effect.

The Impact of Board Gender and Nationality Diversity on Corporate Human Rights Performance in Different Institutional Contexts

ABSTRACTResearch Question/IssueThe duty of businesses to observe human rights (HR) is garnering great interest among corporations, researchers, and policymakers. However, little is known yet about the organizational drivers that make firms pursue higher levels of corporate human rights performance (CHRP). In an attempt to fill this gap, we present the first global study on the influence that board gender and nationality diversity have on CHRP.Research Findings/InsightsWe evaluate panel data of 548 companies worldwide from 2012 to 2021 by using the two‐step system generalized method of moments (GMM) and a moderation analysis. Our results show that board gender diversity has a positive effect on CHRP, but this impact is weaker in institutional settings where patriarchal stances prevail. We also find that board nationality diversity affects CHRP positively only in firms from countries with a network‐oriented approach toward corporate governance.Theoretical/Academic ImplicationsThese findings help to further differentiate CHRP drivers from generic sustainability antecedents and uncover the relevance of adopting an institutional lens when delving into the rationale of CHRP. In this regard, we make a call for future analyses in this field to acknowledge national gender equality levels and societies' corporate governance orientation as potential boundary conditions.Practitioner/Policy ImplicationsOur results may guide companies on how to reduce corporate risks associated with HR violations by incorporating women and foreigners on their boards. They may also encourage businesses and policymakers to boost gender equality both on corporate boards and within societal values as both these aspects may be key for safeguarding HR internationally.

Bridging the green gap: Unveiling the complex interplay of national cultural dimensions, management effectiveness and corruption in driving green innovations

The objective of this research is to investigate the relationship between national culture, management score, corruption, and its implication on firms’ green innovation. This paper analyses 2588 firm year data using panel corrected standard errors (PCSE), two stage least regression (2SLS) and Generalized Method of Moments (GMM). This paper also conducts quantile regressions and propensity score matching (probit regression) for the effect of national cultures on country’s corruption. Our initial observation found that national culture of long-term orientation is positively associated with green innovation. But in contrast to earlier findings, green innovation is negatively associated with individualism and indulgence. Nonetheless, when management score is used as a moderating variable for long term orientation national culture, a negative observation is made, likely due to restrictive regulatory compliance, conflict of interest or even inconsistent ideas amongst the management and the employees during the long-term execution of the project.

IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF VIETNAMESE INSURANCE COMPANIES

Insurance companies have an important function of absorbing and storing economic risks. Therefore, companies need to have optimal, safe, and stable capital sources to be able to finance, diversify, and transfer risks. Previous studies have only focused on market share, customers, competitive strategies, and insurance premiums without paying attention to the capital sources of insurance companies. This is more necessary when Vietnamese insurance companies have a non-optimal capital structure, leading to low profitability. The study aims to fill the above gap by analyzing the impact of capital structure on the profitability of insurance companies through the research sample of the Data Set of 40 insurance companies (listed on HNX, HOSE, UPCOM), corresponding to 297 observations in the period from 2013 - 2023. By using GMM estimation, the author has identified three independent variables explaining (and two control variables) the variation of the dependent variable profitability (ROE), including (i) General debt ratio (GDR), (ii) Debt ratio (DR), (iii) Long-term debt ratio (LDR). Based on the research results, the authors discuss and assess the important role of capital structure in insurance companies and provide financial solution recommendations to improve their profitability.

Impact of Disaggregated External Debt on Economic Growth: Evidence from Asian Developing Economies

Abstract This study investigate the impact of total and disaggregated external debt on economic growth, across 32 Asian developing economies (ADE) from 1995 to 2020. The study applied the generalized method of moments (GMM) and dynamic common correlated estimator (DCCE) with interaction terms of institutional quality and macroeconomic policy to address the non-linearity, across-country heterogeneity, cross-sectional dependence and endogneity. The empirical results indicate that total external debt and its types initially harm economic growth, except for commercial creditors’ debt, which has positive effects. Short-term, private, and multilateral debt show weaker negative associations compared to long-term, public, and bilateral debt. Incorporating interaction terms in non-linear models reveal a shift from negative to positive impacts, highlighting the importance of robust institutional quality and stable macroeconomic policy in mitigating adverse debt effects. Our findings underline the necessity of tailored policies accounting for specific impacts of different debt types on economic growth. Moreover, highlight the significance of institutional quality and macroeconomic policy standards to manage risks, optimize debt management practices, adjust fiscal policies, and foster sustainable economic growth. Future research should further investigate the broad impact of domestic debt in conjunction with external debt across different countries, time periods, and methodological approaches.

The power of financial literacy: paving a clear path for the influence of board diversity on intellectual capital disclosure

PurposeUtilizing a multi-theoretical framework, this study aims to investigate the impact of board gender and nationality diversity on the extent of intellectual capital disclosure. Additionally, it seeks to explore the moderating role of financial literacy among audit committee members on the aforementioned relationship.Design/methodology/approachTo empirically test the study’s framework, a panel dataset of listed firms on the Palestine Stock Exchange (PEX) spanning 12 years (2010–2022) was utilized. To address potential endogeneity issues and ensure robust findings, a battery of econometric estimators was employed, including ordinary least squares (OLS), one-step system generalized method of moments (GMM), lagged independent variables and a sub-index model.FindingsThe study findings make a significant contribution to existing intellectual capital literature. Specifically, the results reveal that the positive influence of board gender and nationality diversity on the extent of corporate intellectual capital disclosure is stronger when there is a high proportion of audit committee financial literacy. Additionally, the study distinguishes between overall index and sub-index analyses. Interestingly, the findings from the sub-index analysis, focusing on structural capital, relational capital and human capital, are somewhat similar to the results of the full index analysis.Originality/valueTo the best of the authors’ knowledge, this study represents the first empirical attempt to uncover the impact of financial literacy among audit committee members on the relationship between board diversity and intellectual capital disclosure.

From petrodollars to green power: Fiscal stability and green transition in GCC economies

This study examines the influence of fiscal stability, characterized by fiscal buffers, on the green transition in the Gulf Cooperation Council (GCC) economies from 2005 to 2023. We apply two-way fixed effects, system generalized method of moments (GMM), method of moments quantile regression (MMQR), and panel causality analysis to explore these dynamics. Our findings underscore that a positive fiscal buffer resulting from a significant spread between oil prices and fiscal breakeven levels exerts a substantial positive impact on green transition efforts in GCC countries. The results reveal that countries with higher levels of renewable energy production capacity and urbanization demonstrate more pronounced advancements in green transition initiatives. Conversely, countries grappling with unstable macroeconomic conditions, such as high inflation and external debt, face considerable challenges in achieving significant improvements in green transition outcomes. Additionally, our analysis shows that fossil fuel energy fiscal subsidies negatively influence green transition efforts in the GCC region. Our study emphasizes that policymakers in GCC countries should pursue a dual-pronged strategy: leveraging positive fiscal buffers to diversify their economies in light of potential benefits from high oil prices, and channelling oil and fiscal revenues towards enhancing renewable energy production capacities. This approach aims not only to diversify economic foundations but also to strategically strengthen the infrastructure necessary for sustainable renewable energy transitions in the region over the long term.

Quantifying the spillover effects of U.S. economic policy uncertainty on emerging market economies using GMM-PVAR model

This paper quantifies the spillover effects of economic policy uncertainty (EPU) in the United States on emerging market economies (EMEs). Using a generalized method of moments (GMM) estimation of a panel vector autoregression (PVAR) model on a dataset­ of 39 EMEs from 2005 to 2019, we find that increased U.S. EPU significantly raises the consumer price index (CPI) and negatively impacts the real GDP of these economies. Additionally, heightened U.S. EPU leads to a depreciation of emerging market currencies and a reduction in short-term interest rates. We employ a news-based EPU index developed by Baker et al. (2016) and conduct robustness checks using forward orthogonal transformation, an alternative EPU index, and by addressing the potential endogeneity of the oil price uncertainty (OPU) index. Our findings highlight the adverse effects of U.S. economic policy uncertainty on key macroeconomic variables in emerging markets, underscoring the importance of stable economic policies and robust institutions to mitigate these impacts.

Financial Openness and Income Inequality in Sub-Saharan Africa: The Role of Development Level and Access to Land

The aim of this study is to analyze the relationship between financial openness and income inequality in Sub-Saharan Africa by controlling the level of development and access to land. By applying the generalized method of moments (GMM) to a sample of 38 countries over the period 2010–2019, the main results are as follows: (i) De facto financial openness reduces income inequality, while de jure financial openness exacerbates income inequality; (ii) Access to land mitigates the effect of de jure openness on income inequalities; (iii) the income level amplifies the effect of reducing financial openness on income inequalities. It follows from these results that access to land can be an excellent instrument for reducing income inequality at the national level due to the reduction of the income gap between rural and urban areas.

Does financial expertise influence Islamic bank risk-taking?

PurposeThis study investigated how the financial expertise of the board of directors, risk management committee (RMC), audit committee (AC) and Shariá Supervisory Board (SSB) influences the risk-taking of Islamic banks.Design/methodology/approachThe study utilized unbalanced panel data for a sample of 43 full-fledged Islamic banks from 15 countries over 12 years (2010–2021). We employed feasible generalized least squares (FGLS) and heteroskedastic panels corrected standard errors (HPCSE) regression regressions as the primary estimation methods and used a two-step system generalized method of moments (GMM) estimator for robustness checks.FindingsThe results indicate that board financial expertise decreases insolvency and credit risks. Similarly, AC financial expertise and SSB financial expertise reduce insolvency and portfolio risks but increase credit risk. In contrast, RMC financial expertise raises insolvency risk. The remaining relationships are statistically insignificant.Research limitations/implicationsDue to the lack of disclosure regarding the educational and professional background of the board and committee members in the annual reports of some Islamic banks, this research used a sample of only 43 full-fledged Islamic banks operating in fifteen countries from 2010 to 2021.Practical implicationsThe findings can assist both local and international regulators in revising corporate governance codes and risk management guidelines in such a way as to ensure that the financial experts appointed to the board, AC, RMC and SSB, are capable of controlling excessive risk-taking behavior in Islamic banks.Originality/valueThis study contributes to the literature by providing comprehensive empirical evidence that corporate governance financial expertise influences the risk-taking behavior of Islamic banks.

A Financing Constraints Paradox? Internal Finance and Capital Structure Link for Tourism Firms: Asian Emerging Market evidence

The aim of the study is to investigate the relationship between the internal financial and capital structure of an organization in the travel and tourism sector. The study shows how financial constraints on tourism companies affect their ability to finance themselves. The study also shows a relationship between tax shielding and financial leverage. This study analyzes panel data collected over a 21 year period, from 1998 to 2019, from over 100 publicly traded tourism companies in three Asian countries. A panel data methodology and the generalized method of moments estimation (GMM) were used in this empirical study. To support our hypothesis, using a generic method to evaluate parameter estimation will be our most effective method to improve the literature. Overall, the results show that financially stressed tourism firms use their option of debt-free tax avoidance to increase leverage. There is also a positive correlation between tax haven and leverage for firms with limited resources. The correlations between financial leverage and corporate debt supported by the results theoretically support the pecking order. By providing useful insights into the tax shielding of non-debt, which is significantly correlated with leverage for firms operating in tourism, this study closes the gap in firms’ capital structure decisions regarding access to finance. JEL Classification: G0, G01, L25