Instrumental Variable Tests Research Articles

Digital literacy and green consumption in rural households: the moderating effect of social participation

ABSTRACT Rural household consumption significantly contributes to global greenhouse gas emissions. Promoting green consumption among rural households is essential for achieving global sustainable development. By applying the cost signalling theory and the social affiliation hypothesis, our study, which utilized a panel dataset of 4179 rural households in China, found that digital literacy significantly enhances green consumption among rural households. The robustness of these findings is corroborated by instrumental variable method-based tests. Furthermore, our analysis reveals that social participation acts as a moderating factor, diminishing the impact of digital literacy on promoting green consumption in rural households. In contrast, environmental awareness does not exhibit a significant influence in this context. Research holds significant theoretical and practical importance in promoting green consumption among rural households.

Opportunity or opportunism? Blockchain technology adoption and corporate default risk

Blockchain technology plays a significant role in new technology infrastructure and has a significant influence on artificial intelligence, big data, and 5 G, and its application has been extended to the Internet of Things, digital asset transactions, digital finance, and so on. In financial systems, it could improve the efficiency of data processing, reduce errors, and detect fraud. However, blockchain adoption could increase the stock price and induce manipulation opportunisms. Managers could also use this advantage to mask their performance and increase corporate default risk. Using the data of Chinese listed companies from 2001 to 2021, we investigate whether blockchain technology adoption could increase or decrease corporate default risk. Using the expected default risk model to estimate the risk, the results show that the default risk increases once the firm adopts blockchain technology, which indicates managerial opportunism behavior. The effect works in firms with CEO duality and higher power consolidation. And similar results are also shown in the dual-duty companies. The results are also robust in instrumental variable tests, difference-in-difference tests (DIDs), firm-fixed effect, placebo tests, and other robustness tests.

Aversion to the use of foreign exchange hedging in state-owned enterprises: Evidence from China

Using a sample of state-owned enterprises (SOEs) listed in China from 2006 to 2017, we examine the impact of state ownership on foreign exchange (forex) hedging. We find that SOEs engage in forex hedging both less frequently and to a lesser extent than non-SOEs. These results are robust to a series of additional tests, such as difference-in-differences analyses, instrumental variable tests, and alternative explanation tests. The effect is particularly pronounced for SOEs with weaker internal controls, fewer professional auditors, and less marketization. We further find that the use of currency derivatives by SOEs hinders the promotion of managers. Furthermore, the prevalence of subjective performance evaluation in SOEs, as opposed to objective performance measures, affects managers' decisions regarding hedging, as evidenced by negative promotion–performance sensitivity when using financial derivatives. Overall, our study sheds light on the aversion of SOEs to forex hedging, providing insight into the conservative decision-making tendencies of SOE managers under political governance.

Corporate responses to systemic risk: Talk and action

Using text-mining analyses, we find that firms are more concerned about systemic shocks, leading to a subsequent decrease in systemic risk exposure. This finding is robust to endogeneity using the entropy balance, instrumental variable, and quasi-natural experiment tests. A tighter regulatory environment and increased risk aversion are primary reasons for aligning firms’ slogans with their actions, i.e., reducing expenses and increasing cash holdings, to mitigate systemic risk exposure. Importantly, these risk-mitigating strategies produce positive outcomes, including increased earnings and decreased bankruptcy risk for firms. Results suggest regulators can cultivate voluntary reductions in systemic risk by increasing firms’ awareness.

The impact of executives' green experience on environmental, social, and governance (ESG) performance: Evidence from China

Corporate Environmental, Social, and Governance (ESG) performance reflects the alignment of firms with national strategies and macroeconomic development principles, and serves as a crucial foundation for achieving sustainable development. Investigating the factors driving corporate ESG performance has significant theoretical and practical implications. This study utilizes data from Shanghai and Shenzhen A-share listed companies in China from 2010 to 2022 and theoretically analyzes and empirically tests the effects and mechanisms of executives' green experience on overall ESG performance and performance on each element of ESG. The results indicate that executives' green experience enhances the efficiency of corporate green patent innovation, thereby improving environmental performance. In addition, green experiences foster environmental investment and charitable donations, leading to better social performance. Executives with green experience also attract green investors and analysts' attention, thereby improving corporate governance and ultimately positively affecting overall corporate ESG performance. The robustness of these findings is confirmed through alternative variable measurements, Propensity Score Matching(PSM) Tests, Entropy Balancing Tests, Instrumental Variable Tests, and controlling for the impact of significant public health events. Further analysis revealed that the positive effects of executives' green experiences on corporate ESG performance are more pronounced in non-heavily polluting corporations, non-state-owned corporations, and firms where executives have higher power. This study enriches research on the consequences of executives' green experiences and the determinants of corporate ESG performance, extending the boundaries of how executive characteristics influence micro-level corporate outcomes. It also provides valuable references for regulatory bodies promoting ESG practices and decision-making by capital market participants.

Road congestion and air pollution -Analysis of spatial and temporal congestion effects

Urban traffic congestion has resulted in several adverse outcomes, including reduced traffic efficiency, increased noise pollution, and heightened exhaust emissions. It has also emerged as a significant indicator of urban health concerns. This article primarily delves into an examination of the pollution stemming from congestion. To accomplish this, the study focuses on two specific aspects of congestion measurement: long-term spatial constraints (limited travel routes) and short-term time delays (time wasted due to congestion). Expanding on this, the article explores the potential solutions to mitigate pollution effects through measures such as optimizing space utilization through public transportation systems like subways and strategically scheduling travel during holidays. These considerations are incorporated within the article's scope. Additionally, in order to address endogeneity concerns, the research conducts instrumental variable effectiveness tests from both temporal and spatial perspectives. The outcomes highlight the degradation of air quality and the increase in total traffic congestion in both the long and short term, while also indicating the presence of genuine methods to alleviate these issues. Consequently, effective collaborative efforts for prevention and control are imperative to combat environmental and traffic pollution. Moreover, optimizing sustainable urban development plans to enhance land utilization plays a pivotal role in minimizing the external costs associated with long-distance commuting.

Cross-regional integration of renewable energy and corporate carbon emissions: Evidence from China's cross-regional surplus renewable energy spot trading pilot

Using data from A-share listed renewable energy enterprises, this study constructs a quasi-natural experiment with China's Cross-regional Surplus Renewable Energy Spot Trading Pilot policies as the shock and explores its impact on corporate carbon emissions from 2014 to 2021 using the staggered difference-in-differences (DID) model. The results indicate that the Cross-regional Surplus Renewable Energy Spot Trading Pilot can significantly reduce the carbon emissions of renewable energy enterprises in pilot regions during the sample period, demonstrating heterogeneity in regional location, ownership, and corporate social responsibility. The positive effect of the pilot is more pronounced for enterprises in the central region, state-owned enterprises, and enterprises with a high sense of social responsibility. The results remained robust when we applied propensity score matching DID, difference-in-differences-in-differences (DDD), placebo tests, alternative measures and 2SLS instrumental variable tests to further eliminate the interference from other factors. Moreover, in terms of mechanisms, the Cross-regional Surplus Renewable Energy Spot Trading Pilot can reduce corporate carbon emissions by promoting renewable energy consumption and corporate energy efficiency. This study enhances understanding of cross-regional renewable energy integration, expanding discussions on selecting trajectories for energy efficiency and emissions reduction goals in the energy sector. Our findings offer practical examples of how different regions and countries promote the integration of renewable energy markets, thereby contributing to research on renewable energy integration.

The Distribution of Risk Across Healthcare Providers and Reducing Misclassification

Four linear multilevel mixed-risk models were compared using model assumption tests and predictions. Models varied by the number of random intercepts from 1 to 4, producing 2-level through 5-level models of the same measure, operative time. Normality of the dependent variable and residuals, variance homoscedasticity, level-1, and level-2 exogeneity were tested using the robust test of the level-1 residuals variance by surgeon, estimates of density, skew, and the Hausman test. Measure (operative time by hospital and surgeon) aberrancy and risk classification were evaluated using traditional methods and used to assess distribution measures. The dependent variable and the level-1 residuals required transformation for linearity and variance stabilization, respectively. Normality criteria were met for both level-1 and level-2 residuals and standardized residuals. The likelihood ratio comparing the four models was significantly larger for the 5-level (1016.1; P<0.00005) model than the likelihood ratio for the four-level and other models. Shrinkage was greatest for the 2-level model (0.039; P<0.00005) and least for the 5-level model (0.028; P<0.00005). Level-1 variance homoscedasticity was confirmed by the robust variance test across all models (P>F=1). Aberrant value detection did not require the exclusion of any observations, while prediction intervals revealed low or high risk for 54.2% of surgeons for the 2-level model and 8.6% for the 5-level model. The traditional (c2 = -11.01; P=1) and instrumental variable (c2 = 21.06; P=1) Hausman tests show that the null hypothesis cannot be rejected for level-1 or level-2 exogeneity. Once level-1 and level-2 exogeneity was confirmed, and since deconfounding was a model consideration, causal inferential capacity was assumed. The likelihood ratio, residual variance, shrinkage, and predictions show that the 5-level model is preferred to the other models.

Fintech Development and Firm Technological Innovation Efficiency: Empirical Findings in China

As a new combination of finance and technology, fintech not only makes people's daily life more convenient but also brings new opportunities for firm growth. Yet, although multiple parties in society have benefited tremendously from the development of fintech, its actual impact on FTIE remains unclear. For this purpose, we adopted a two-way fixed-effect model and considered the data of A-share-listed companies from 2011 to 2019 to analyze the impact of fintech development on FTIE in China and its associated mechanism. We found that fintech development negatively affected FTIE by increasing business risks and debt pressures through risk transmission and regulatory arbitrage, respectively. This finding remains robust after using instrumental variable tests and adopting Poisson and Tobin regression models. Furthermore, such negative impacts are higher for firms in the eastern region, nonmanufacturing firms, and state-owned enterprises. Our findings contribute significantly to the literature on technological innovation and financial regulation by shedding light on the negative impacts of the dominating fintech development on FTIE.

Do foreign institutions avoid investing in poorly CSR-performing firms?

We examine the impact of corporate social responsibility (CSR) on the investment decisions of foreign institutional investors. Using institutional investor holdings data domiciled in emerging markets, we find a positive and economically significant impact of firm CSR performance on foreign institutional ownership. We further document that independent foreign investors are affected by firm CSR performance, while gray foreign investors do not consider firm CSR performance when forming portfolios. Cross-sectional tests indicate a more potent positive impact of CSR on foreign institutional investor holdings for firms domiciled in countries with stronger disclosure and better governance. Moreover, investors domiciled in countries with common law consider firm CSR performance when forming portfolios. The results are robust to exogenous shocks, instrumental variable tests, and alternate specifications.

Can digitalization reduce industrial pollution? Roles of environmental investment and green innovation

Industrialized nations have witnessed a decline in environmental quality over the years. The potential of digitalization in mitigating environmental pollution is of significant interest. Drawing on firm-level data from listed Chinese companies between 2010 and 2020, including pollutant and financial metrics, this study investigates the influence of digitalization on industrial environmental pollution. We found that digitalization substantially diminishes the intensity of industrial pollution emissions. These findings hold even after employing instrumental variable tests, substituting the dependent variable with carbon dioxide emissions, and conducting a quasi-natural experiment in intelligent manufacturing. Moreover, our exploration of the underlying mechanisms reveals that the decline in pollution emission intensity attributable to digitalization stems from both structural and technological factors; specifically, it enhances environmental investment and fosters green innovation. The benefits of digitalization in curbing emission intensity are pronounced for firms characterized by lower pollution levels, executive leadership with environmental work backgrounds, heightened capital intensity, and elevated media coverage.

Equity Market Fragmentation and Capital Investment Efficiency

This study examines how equity market fragmentation affects firms’ capital investment decisions. Recent empirical research finds that market fragmentation lowers trading costs and thus improves market quality. We examine whether this increase in market quality translates into greater revelatory price efficiency, where stock prices reveal with greater precision information to managers and/or creditors about firms’ investment opportunities. Consistent with this notion, our findings reveal that the association between capital investment and investment opportunities is increasing in market fragmentation. Additional evidence suggests that (a) market fragmentation increases revelatory price efficiency at least in part by encouraging information acquisition and informed trade by equity investors and (b) the more efficient stock prices inform both managers and creditors about firms’ investment opportunities. Inferences based on difference-in-differences and instrumental variable tests are consistent with those based on our primary findings. This paper was accepted by Suraj Srinivasan, accounting. Funding: The authors are grateful to the Kenan-Flagler Business School, Cox School of Business, Smeal School of Business, and David Eccles School of Business for funding our research. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4905 .

Till debt does us apart: Cross-country evidence on the relationship between microfinance prevalence and social distrust.

Economic interventions have social consequences. In this paper, we explore one such relationship, between microfinance intensity and social distrust levels reported by the low-income people. We find a significant association between microfinance intensity in a country and distrust among the poor as well as ultra-poor in cross-section using World Values Survey & European Values Survey (WVS-EVS) Wave 7 (2017-2022). We supplement these findings using empirical Bayes on a panel extending back from 7th to the 4th WVS wave (1999-2004). To deal with potential endogeneity, we run 2SLS as well as weak instruments-robust conditional instrumental variable tests and find evidence showing microfinance prevalence intensity affects distrust levels among the poor and ultra-poor households. We find no association between microfinance and distrust levels in the rich in any of the tests, potentially because the rich are not exposed to microfinance.

One false step can make a great difference: Does corporate litigation cause the exit of the controlling shareholder?

Controlling shareholders dominate corporations and shareholder exit behavior is usually accompanied by the transfer of control. Using China's A-share listed companies as data from 2000 to 2017, this study investigates the effect of corporate litigation on the exit of controlling shareholders and related mechanisms for the first time. Empirically, we find that if a firm is involved in a lawsuit as a defendant, then the possibility of the controlling shareholder's exit increases. This finding is robust to various checks, including the parallel-trend assumption, placebo, instrumental variable tests, and the consideration of other potential factors. The tests reveal that this effect is mainly due to an increase in three aspects—the uncertainty of the firm's future cash flow, corporate risk, and external financing costs. Heterogeneity analyses find that contract lawsuits exhibit the strongest positive predictive powers over the subsequent exits of controlling shareholders. The firm's majority controlling shareholders, and institutional, non-family, and non-financial controlling shareholders are more likely to exit upon litigation.

Corporate social responsibility and cross-border M&A: The moderating effect of institutional distance.

Drawing upon a dataset of cross-border mergers and acquisitions (M&A) events of Chinese enterprises from 2010 to 2017, this study investigates the impact of corporate social responsibility (CSR) on the completion of cross-border M&A with a focus on the moderating role of institutional distance. The results highlight the significance of CSR on the completion of cross-border M&A. The robustness tests including changing estimation model, new measurements, propensity score matching, and instrumental variable tests show that the main results are consistent. Second, both formal and informal institutional distance have positive moderating effects of CSR on the completion of cross-border M&A.

Immigrant Supply of Marketable Child Care and Native Fertility in Italy

The availability of child-care services has often been advocated as one of the instruments to counter the fertility decline observed in many high-income countries. In the recent past large inflows of lowskilled migrants have substantially increased the supply of child-care services. In this paper we examine if the flow of immigrants as actually affected fertility exploiting the natural experiment occurred in Italy in 2007, when a large inflow of migrants - many of them specialized in the supply of child care - arrived unexpectedly. With a difference-in-differences method, we show that newly arrived immigrant female workers have increased the number of native births by roughly 2 per cent. We validate our result by the implementation of an instrumental variable approach and several robustness tests, all concluding that the increase in the supply of child-care services by immigrants has positively affected native fertility choice.

Immigrant supply of marketable child care and native fertility in Italy

AbstractThe availability of child-care services has often been advocated as one of the instruments to counter the fertility decline observed in many high-income countries. In the recent past, large inflows of low-skilled migrants have substantially increased the supply of child-care services. In this paper, we examine if immigration has actually affected fertility exploiting the natural experiment occurred in Italy in 2007, when a large inflow of migrants—many of them specialized in the supply of child care—arrived unexpectedly. With a difference-in-differences method, we show that immigrant female workers have increased native births by a number that ranges roughly from 2% to 4%. We validate our result by the implementation of an instrumental variable approach and several robustness tests, all concluding that the increase in the supply of child-care services by immigrant women has positively affected native fertility.

Does geopolitical risk promote mergers and acquisitions of listed companies in energy and electric power industries

Abstract Based on Chinese firm-level panel data in energy and electric power industries from year 2007 to 2018, we adopt panel data OLS regression model to empirically study the impact of geopolitical risk (GPR) on mergers and acquisitions (M&A). We find that GPR significantly promotes M & A, and GPR significantly positively affects M & A through possible mechanisms of real option and prospect synergy effect. Further researches indicate that debt ratio and ownership property attenuate the positive influence of GPR on M&A. Instrumental variable and other robustness tests still stand on our results.

Equity Market Fragmentation and Capital Investment Efficiency

This study examines how equity market fragmentation affects firms’ capital investment decisions. Recent empirical research finds that market fragmentation lowers trading costs and thus improves market quality. We examine whether this increase in market quality translates into greater revelatory price efficiency, where stock prices reveal with greater precision information to managers and/or creditors about firms’ investment opportunities. Consistent with this notion, our findings reveal that the association between capital investment and investment opportunities is increasing in market fragmentation. Additional findings suggest that (a) market fragmentation increases revelatory price efficiency at least in part by encouraging information acquisition by equity investors and (b) the more efficient stock prices inform both managers and creditors about firms’ investment opportunities. Inferences based on difference-in-differences and instrumental variable tests are consistent with those based on our primary findings.

The Role of The Media in Corporate Governance: Evidence From Shareholder Proposals

This paper examines the role played by the media in the shareholder proposal process. We find a positive relation between media coverage and the likelihood to be targeted by governance proposals. The effect is mostly concentrated in proposals submitted by non-institutional shareholders and driven by negative news. Negative media coverage is also associated with the success of proposals and changes in executive compensation and board turnover. Instrumental variable analysis and tests exploiting local newspaper closures suggest that the relationship between media coverage and shareholder proposals is causal. Our results shed light on a new channel through which the media can play a corporate governance role.