Instrumental Variable Regression Research Articles

Regional cultural inclusiveness and firm performance in China

As society continues to develop, a growing body of research is focusing on how informal institutions, such as culture, influence corporate behavior and economic outcomes. The aim of this study is to explore the impact of cultural inclusiveness, as a non-formal institution, on firm performance. Using Chinese A-share listed firms as our sample, we employ econometric methods to analyze the relationship between cultural inclusiveness and firm performance. Our findings reveal that cultural inclusiveness enhances firm performance, particularly evident in regions with higher levels of cultural inclusiveness, where firms tend to exhibit higher return on equity. To address concerns of endogeneity, instrumental variable regression using regional topographical changes is employed. Mechanism testing indicates that cultural inclusiveness primarily improves firm performance by reducing financial constraints and optimizing employee structure. Additionally, the study finds that cultural inclusiveness has a more pronounced impact on firms with higher corporate social responsibility (CSR) performance as well as those with greater investment in research and development (R&D). This study provides a comprehensive empirical explanation of how cultural inclusiveness influences the sustainable operation of businesses.

Controlled Grazing as a Pathway for Enhancing Investment in Multipurpose Trees and Welfare

AbstractIn Africa, rangeland ecosystems have been exploited due to heavy and unsustainable grazing. Policy and institutional mechanisms such as integrating silvopastoral systems with sustainable grazing practices have been devised to mitigate the negative effects. In this study, we investigated whether the uptake of sustainable grazing management in the form of controlled grazing spurs investment in multipurpose trees (MPTs) and enhances income. Using instrumental variable regression, we find that controlled grazing increases not only the propensity to plant MPTs but also the number of tree species. More importantly, IV and treatment effect results indicate that controlled grazing enhances income from MPTs.

Female legislators decrease epidemic deaths

Recent discourse has lauded the efficacy of female leadership in national governments, particularly during the COVID-19 pandemic. This study employs two-way fixed effect (TWFE) and instrumental variable (IV) regression methodologies to reveal a more pronounced association between the proportion of female legislators and reduced epidemic-related mortality, rather than a direct correlation with female executive leadership. Further analysis elucidates that the effectiveness of female legislative representation is amplified through its interaction with the deliberative processes in governance. This suggests that policy diversity and inclusive decision-making mechanisms are instrumental in enhancing epidemic response efficacy.

Unlocking financial access in a developing country amidst COVID-19: the impacts of financial literacy and fintech

We examine the impacts of financial technology and financial literacy on the development of financial inclusion among the younger generation using data from a survey with 1288 students in Vietnam in the city and rural areas. We employ logistic regression and two-stage instrumental variable regression for our analysis, with location and financial shock caused by COVID-19 serving as the instruments. Vietnam is a fintech hub in Asia with the world-leading adaption of cryptocurrency and a significantly high rate of e-wallet use. The results indicate although there is a gap in access to financial services between urban and rural areas, the access rate is considerably high. Fintech and financial literacy play a significant role in facilitating this high level of financial inclusion development. Women have better access to financial services, showing the effectiveness of women’s empowerment programs. Little evidence shows the negative impact of the pandemic on financial inclusion.

Related-party transactions and CEO foreign experience: Evidence from China

Chinese CEOs with foreign experience tend to engage less in related-party transactions (RPTs). This result holds across various analyses, including firm-fixed effects model estimations, matching on firm and CEO characteristics, additional controls, and instrumental variable regressions. The effect of CEO foreign experience is pronounced for non-state-controlled and non–politically connected firms. The effect is weaker for firms with independent boards and foreign shareholders. Moreover, CEOs exposed to more developed institutional environments tend to reduce RPTs more. Collectively, our findings indicate that CEO foreign experience can enhance corporate governance in emerging markets.

Impacts of the energy transition on public health in the context of country risk: From an international perspective

The global climate issue is becoming increasingly serious, and studying the energy transition (ET) has proven to be an effective solution to this problem. The essence of climate mitigation is to address the issue of ensuring the public health (pH) of human beings. Still, the definitions of ET in existing literature are inconsistent, and Many researches overlook the definitions of ET in official documents and discuss the relationship between ET and pH. Therefore, this research utilizes panel data from 107 countries over the period 2000–2020 to construct an energy transition indicator based on the definition from the World Economic Forum (WEF). It also examines the link between ET and pH using a two-way fixed effects regression. In the current turbulent international environment, this paper also investigates this link in the context of composite risk control (CRC), financial risk control (FRC), economic risk control (ERC), and political risk control (PRC). The results show that ET can significantly improve pH, a conclusion that remains significant after being subjected to a range of robustness tests. The study exploring the mechanism impact on the relationship between ET and pH shows that CRC, FRC, ERC, and PRC all strengthen the effect of ET on pH, and the mechanism effect varies considerably between high-income and low- and middle-income countries (LMICs); ET is more significantly affected by the mechanism in LMICs than in high-income countries. Furthermore, this paper illustrates that ET does not differ by gender in improving pH among infants, while there are gender differences in adults by using the instrumental variable regression and GMM regression to mitigate the endogenous and heteroscedasticity issue for heterogeneity test. The study in this paper can not only inspire policy researchers on which aspects to promote ET, but also provide a direction for improving pH.

The impact of forage condition on household food security in northern Kenya and southern Ethiopia

We studied the causal link between forage condition and food security in northern Kenya and southern Ethiopia and probed the mechanisms through which the effects occur. The study utilized weekly panel survey data collected over a period of 94 weeks (March 2021–December 2022) from drought-prone pastoral regions and estimated two-stage least squares instrumental variables regression to assess causal impacts. We found that an increase in the normalized difference vegetation index (NDVI) – our proxy for forage condition – by 10% significantly reduced the likelihood of a household experiencing food insecurity by 12 percentage points. The main mechanisms through which improved forage condition increased food security were livestock productivity enhancement, reduced prices of basic food commodities (cereals, legumes, and vegetables), and utilization of better coping strategies by households. These findings suggest the need for interventions and initiatives aimed at boosting livestock productivity and reducing vulnerability to drought-induced poor forage conditions. Efforts focused on the monitoring of forage conditions and supporting market development for livestock feed are important for addressing the adverse impacts of drought and deteriorating forage conditions in the horn of Africa. Furthermore, the monitoring of drought conditions and shocks using high-frequency data has the potential for providing early warning and informing anticipatory action.

Expectations of bank automation: the influence of consumer cognitive schema

PurposeThis study aims to investigate the drivers of bank automation system performance expectancy compared to that of bank employees. The purpose is to shed light on the role played by consumers' cognitive schema on automation that is the perfect automation schema (PAS).Design/methodology/approachA survey was administered to about 500 Italian subjects to measure their PAS; financial knowledge, anxiety, and security; and sociodemographic and socioeconomic variables. Ordered probit regressions and an instrumental variable two-stage least squares regression are run.FindingsThe analyses reveal that cognitive schemas play a crucial role in consumer expectations in banking. Individuals with stronger PAS tend to have more positive expectations about bank automation performance compared to employee performance. Financial anxiety and knowledge positively affect bank automation performance expectancy while women, older people, and financially insecure subjects have poor expectations of automated banking systems.Originality/valueThis study extends the understanding of key consumer characteristics that affect bank automation performance expectancy compared to that of bank employees in services delivery in the Italian context. Moreover, it provides useful results for researchers, practitioners, banking institutions, and regulators.

Clan culture and corporate cash holdings: Are private companies supported by informal institutions?

In this paper, we empirically examine whether clan culture in China, an extant informal institution established 2000 years ago, affects corporate cash holdings. We use city-level pedigree density as a proxy for clan culture and find that private firms deeply entrenched in clan culture are less likely to hold cash. Our results hold after a series of robustness tests, including instrumental variable regression, alternative measures, and controlling for other influencing factors. Mechanism tests demonstrate that in places with strong clan culture, the cash holdings of private firms are less sensitive to the volatility of operating cash flow, and those non-state-owned enterprises are more likely to obtain alternative financing sources and less likely to carry out high-risk activities. Cross-sectional analyses show that the negative relationship between clan culture and corporate cash holdings is more prominent for firms located in areas with lower marketization or worse economic development. Furthermore, under the shock of the COVID-19 pandemic, firms with strong clan culture enjoy faster growth in trade credit rather than in interest-bearing liabilities. Overall, our findings provide evidence for the existence of sociocultural determinants of corporate cash holding decisions, as they demonstrate that clan culture secures corporate operations and thus reduces the precautionary motives for holding cash.

Board gender diversity and accounting conservatism: the role of corporate social responsibility

Purpose This paper aims to provide deeper insights into the relationship between board gender diversity (BGD) and accounting conservatism by exploring the mediating role of corporate social responsibility (CSR) underlying this relationship. Design/methodology/approach The authors sample 10,252 firm-year observations from 932 publicly listed firms in 15 European countries over the 2010–2020 period. The authors conduct several models for panel data, applying mediation mechanisms, the Heckman two-stage model and the generalized method of moments and instrumental variable regressions to test the research hypotheses and account for endogeneity problems as well as unobservable heterogeneity. Findings Based on an integrated theoretical framework that draws insights from agency, resource dependence and stakeholder theories, the authors establish a positive and significant relationship between BGD and accounting conservatism, which is significantly mediated by CSR. The authors provide empirical evidence for the prior inconsistent results on the gender diversity-conservative accounting link and suggest that BGD promotes effective corporate governance and enhances CSR performance, which in turn, leads to higher conservatism in financial reporting. Practical implications The findings have important implications for regulators, policymakers and managers in understanding the drivers to ensure and control the quality of financial reporting. The results alert firms to the need to focus not only on the importance of BGD but also on CSR activities to ensure higher earnings reporting quality. Social implications The results are significant in encouraging a higher presence of women on corporate boards, enhancing CSR performance and drawing social attention to mitigating earnings management practices through higher conservatism in financial reporting. Originality/value This paper recognized a gap in the literature not yet examined and contributed to the body of knowledge through the mediating role of CSR in the relationship between gender diversity and accounting conservatism.

The impact of socioeconomic factors on water stress: insights from global analysis

ABSTRACT By utilizing a socioeconomic framework, this paper contributes to the water stress literature. Employing the instrumental variable quantile regression model on 81 countries from 2000 to 2019, our findings reveal financial development can alleviate high levels of water stress. Good governance consistently reduces water stress but human development exacerbates water stress, indicating a conflicting relationship between improving human development and reducing water stress. The moderating effect of good governance reveals that when combined with human development, it can effectively reduce water stress.

IMPACT OF SOCIAL CAPITAL ON PERFORMANCE OF INFORMAL SECTOR FIRMS: EMPIRICAL STUDY USING INDIAN FIRM DATA

Informal sector enterprises are the businesses that do not registered under the government and therefore not entitled for taxations. Social capital refers to the human networks and relationships people often maintain on their development. Three main types of informal businesses considered in this study are manufacturing, reselling and provision of services. They play a significant role in contributing to the global economy especially in developing countries. The study aimed to examine the impact of social capital on informal businesses. The study further explores the mediating effects of Covid pandemic and female ownership on the informal business performance. Secondary data for the study was obtained from World Bank Enterprise Survey website and the dataset was selected in the Indian context as India is one of the leading countries in South Asia where informal businesses have closer proportion of national economy. Dependent variable, informal business performance was measured in terms of profit and total sales, whereas the independent variable, social capital was measured using a self-developed scale by the author. Multiple regression, instrumental variable regression and censored regression (tobit) models have been used in analysis. The STATA version 11.1 is used as the statistical tool. The regression results show a strong positive relationship among the social capital and informal business performance, while the mediating effect of the global pandemic and female ownership on informal business performance were not significant.

Can board of directors’ faultlines improve corporate innovation performance? Evidence from China

Innovation, which is a pivotal force behind the sustained growth of enterprises, has garnered significant attention across various industries. As the epicenter of corporate decision-making, the board of directors plays a pivotal role in allocating resources and overseeing the execution of strategy. Consequently, it inevitably impacts the innovation capabilities of a business. Previous research has focused primarily on single board member characteristics, such as age, gender, tenure, and educational qualifications, overlooking the cumulative influence of multiple attributes. Therefore, this study aims to investigate the impact of faultlines arising from the intersection of these characteristics within a board on innovation performance. Using panel data from China’s A-share listed companies from 2010 to 2021, this research constructs a framework to analyze board faultlines based on gender, age, education, director tenure, independence status, and occupational background. A comprehensive examination reveals a positive association between board faultlines and innovation performance, indicating that diversity within a board can foster enhanced innovative outputs. These findings persist even after rigorous robustness tests, including two-stage instrumental variable regression using lagged innovation performance as well as when substituting explanatory variables and sample intervals. Further analysis reveals that the influence of board faultlines on innovation performance is significant only under certain contextual conditions: when equity concentration is low, industry competition is intense, and risk aversion is greater. This study offers valuable insights for optimizing board membership configurations and thus, ultimately, enhancing the innovation capabilities of enterprises.

Investigating tax risk’s influence on tax avoidance and debt costs: evidence from France

Purpose This paper aims to examine the impact of tax avoidance on the cost of debt. It also investigates the effect of tax risk on the relationship between tax avoidance and the cost of debt. Design/methodology/approach Two hypotheses are tested on a sample of nonfinancial French firms listed in the société des Bources Françaises 120 index from 2010 to 2022 using the feasible generalized least squares. To ensure the robustness of the findings, the authors changed the measures of tax avoidance and tax risk and used instrumental variable regression to effectively address concerns related to endogeneity. Additional analysis is conducted to examine if the relationship between tax avoidance and the cost of debt varies based on the magnitude of tax risk. Findings The authors found that tax avoidance negatively affects the cost of debt. However, when tax avoidance is associated with a high risk, it impacts positively the cost of debt. Practical implications This study’s findings are relevant to firms, creditors and French lawmakers. Creditors must make their decision to grant credit based simultaneously on proxies of tax avoidance and tax risk. Managers must effectively manage tax risks to protect their financial decisions, urging French policymakers to implement new regulations on corporate tax risk management. Originality/value To the best of the authors’ knowledge, this study is the first to have investigated the joint impact of tax avoidance and tax risk on the cost of debt in the French context.

Is air pollution the original sin of firms? The impact of air pollution on firms' ESG scores

This is the first article to demonstrate the negative impact of air pollution as an informal institution on firms' ESG scores with listed manufacturing firms in China from 2010 to 2020. It is based on causal attribution theory and risk perception theory. We argue that, under the current ESG rating system, air pollution issues may be overly attributed to firms, resulting in decreased ESG scores. We find that when PM2.5 pollution concentration increases by 1 μg/m3, firms' ESG scores decrease by roughly 0.3 points. These results remained significant after a series of robustness tests and instrumental variable regressions. We find that firms in heavily polluting industries are almost twice as affected as those in non-heavily polluting industries. The negative impact on labor-intensive firms is also significantly higher than the impact on capital-intensive firms. State-owned firms and large-scale firms are less affected than private firms or small firms. The results show that information asymmetry is an important influencing mechanism. Firms can reduce the negative influence of air pollution through active information disclosure and external media reports. We note that air pollution can also decrease firms' ESG scores by increasing firm survival risks. Our results enrich the ESG literature and contribute to the understanding of the impact of informal institutions on firms' ESG scores.

Revisiting the resource curse hypothesis from the viewpoint of green growth: The role of Fintech as the de-cursing agent

Conventionally, the resource curse hypothesis highlights the economic growth-inhibiting impacts that are often associated with the expansion of natural resource-based industries. However, not much focus has been given to assessing whether natural resource consumption hinders green growth establishment, as well. Hence, this study makes a novel attempt at evaluating the validity of the resource curse hypothesis from the viewpoint of green growth in the context of selected Sub-Saharan African countries. Notably, this study focuses on whether natural resource abundance upholds green growth in the concerned Sub-Saharan African nations, especially by reducing their annual carbon emission-adjusted economic growth levels. More importantly, this study ascertains whether Fintech development, via the channel of Fintech-based startup financing, can promote green growth in these countries and thereby act as a de-cursing agent for tackling the possible economic and environmental curses imposed by their natural resource sectors. Accordingly, by employing a recently developed two-stage instrumental variable regression method, the resource curse hypothesis is verified from the perspective of green growth establishment. On the other hand, Fintech development is found to not only promote green growth on its own but also act as a de-cursing agent that partially offsets the green growth-impeding effects associated with natural resource consumption. Furthermore, capital accumulation is identified as a green growth-restricting factor while institutional quality improvement is observed to stimulate green growth across the selected Sub-Saharan African countries. Therefore, considering these major findings, a couple of green growth-promoting policy suggestions are put forward.

Financial accessibility and MSME’s labour productivity: evidence from developing countries

PurposeThis study aims to re-examine the relationship between financial accessibility and performance of micro, small and medium enterprises (MSMEs) in developing countries using a large database.Design/methodology/approachThis study uses cross-sectional firm-level data from the World Bank Enterprises Survey database collected under Wave II from 2006 to 2019. Controlled for firm level and country level factors, OLS and instrumental variable regressions have been used for analysis. Firm performance has been measured in terms of labour productivity.FindingsThe study observes a positive association between access to finance and MSME performance measured in terms of sales and value-added per worker. Along with firm characteristics (like size, age and managerial experience), country’s development level, institutional quality (i.e. corruption and regulations) and economic openness also impact MSMEs’ productivity.Practical implicationsStrengthening the financial system to allow the financial sector to meet the requirements of MSME finance is very important. Better access to external finance will enable MSMEs to invest in upgrading technology and expanding operations, thus improves their labour productivity. As the MSME sector is vulnerable to economic shocks, policies facilitating their access to formal credit during crises could strengthen resilience.Social implicationsCredit constraint to MSMEs is a multi-stakeholder problem. It requires a coordinated approach from MSME owners, financial institutions and policymakers to address it and enhance the credit flow to the MSME sector. Timely research inputs from academia, research institutions and think tanks may help assess MSMEs promotion policies and their revision if needed.Originality/valueTo the best of the authors’ knowledge, this is the first study that examines the effect of access to finance on the labour productivity of MSMEs in developing countries. Given the mixed results in the recent past between access to finance and firm performance, it highlights the critical role of financial accessibility in improving their labour productivity and thus enabling MSMEs to realise their full potential in developing countries.

Food for Thought: Understanding the Impact of Food Insecurity on Fertility Dynamics in the U.S.

This paper examines the relationship between food insecurity rates and fertility rates in the United States using panel data at the county level spanning from 2010 to 2017. Drawing upon health literature that highlights the disproportionate burden of food insecurity on women and its adverse effects on maternal and child health, I investigate the hypothesis that counties with lower rates of food insecurity exhibit lower fertility rates by employing an instrumental variable regression approach with two-way fixed effects. The two most notable findings are, first, that there is weak but suggestive evidence of a positive relationship between food insecurity and fertility at the national level and second, regional disparities can cause this relationship to turn negative. These findings underscore the significance of socioeconomic factors in shaping reproductive behaviors. Further research using alternative econometric techniques is warranted to investigate causal mechanisms in the observed relationship.

Increased alcohol intake is associated with radiographic severity of knee and hand osteoarthritis in men

Observational studies have shown controversial associations between alcohol intake and radiographic osteoarthritis (OA). This study investigated whether this association was causal using a Mendelian randomization (MR) study in a population-based cohort in Korean. The study enrolled 2429 subjects (1058 men, 1371 women) from the Dong-gu Study. X-rays of the hand and knee joints were scored using a semi-quantitative grading system to calculate the total score of the hand and knee joints. ALDH2 rs671 genotyping was performed by high-resolution melting analysis. MR instrumental variable analysis and observational multivariable regression analysis were used to estimate the association between genetically predicted alcohol intake and the radiographic severity of OA. Subjects with the G/G genotype had a higher current alcohol intake than those with the G/A and A/A genotypes in both men and women (all P < 0.001). Men with the G/G genotype had higher total knee (P < 0.001) and hand scores (P = 0.042) compared to those with the G/A and A/A genotypes after adjusting for age and body mass index, but not in women. In the observational multivariable regression analysis, each alcohol drink per day in men was associated with increased knee (P = 0.001) and hand joint scores (P = 0.013) after adjustment, but not in women. In our MR analysis, utilizing ALDH2 rs671 genotypes as instrumental variables for alcohol consumption, has shown a significant link between each additional daily alcohol drink and increased radiographic joint severity in men.

Estimating own-price and cross-price elasticity of cigarette consumption by price tiers in Bangladesh

ObjectivesThe overall price elasticity of cigarette consumption in Bangladesh has been studied extensively. The estimates of price elasticity by price tiers are not available in the existing literature.MethodsUsing cohort data...