Instrumental Variable Approach Research Articles

Internet use and household financial market participation: evidence from China

ABSTRACT This paper examines the effect of internet use on household financial market participation and its underlying mechanism. Using data from the 2018 China Family Panel Studies (CFPS), we find that households with internet use are 4.7% more likely to participate in financial market investments than those without. The finding remains robust after accounting for endogeneity concerns using the instrumental variables approach and a fresh double machine learning approach. We highlight the phenomenon of ‘digital divide’ that the positive effects of internet use on making financial investments are more substantial among families living in economically developed regions, and families with higher income and education levels than their counterparts. We identify three novel mechanisms through which internet use affects household investment decision-making, namely the internet information mechanism, the internet social mechanism, and the internet enabling mechanism. These findings suggest that expanding digital infrastructure building and increasing the number of internet users are important ways to enhance households’ participation in financial markets.

Impact of skilled nursing facility quality on Medicare beneficiaries with dementia: Evidence from vacancies.

People living with dementia are less likely to be admitted to high-rated nursing homes than people without dementia, despite their increased care needs. We investigated the effect of admission to nursing homes with higher staffing ratings on adverse outcomes for individuals with and without dementia post-hospitalization. Among Traditional Medicare beneficiaries discharged to nursing homes between 2011 and 2017, we examined the relationship between facility staffing star-ratings and short-term readmission and mortality using an instrumental variables approach to account for selection bias. The instrumental variables were the number of nearby vacant beds in high-rated facilities. Admission to a higher-rated nursing home lowered post-discharge mortality risk at 90 days and reduced 30- and 90-day readmission. Point estimates were larger for people with dementia. Findings underscore the need for enhancing direct care staffing in nursing homes and addressing access disparities, particularly for individuals with dementia who benefit significantly from high-quality care. We assessed how admission to nursing homes with higher staffing ratings impacted outcomes for individuals with and without dementia by exploiting variation in local bed vacancies as a source of quasi-random assignment. For both persons with and without dementia, adjusted short-term mortality and readmission rates were lower among those discharged to nursing homes with higher staffing ratings. Effects were larger for persons with dementia, indicating welfare loss from inequitable access to higher-rated nursing homes. Increasing staffing in nursing homes and reducing disparities for persons with dementia is essential for enhancing both equity and value.

Does climate policy uncertainty influence the corporate cost of debt?

This paper employs a sample of Chinese A-share listed companies spanning from 2011 to 2022 to empirically investigate the influence of climate policy uncertainty on the corporate cost of debt, based on the theory of financial friction. We find that climate policy uncertainty significantly increases the corporate cost of debt, and the result is supported by robustness tests. To avoid biases arisen from endogeneity, this paper introduces an instrumental variable approach and propensity score matching method for verification. The endogeneity test results support the baseline regression results as well. Finally, this paper also discovers that financing constraints are the potential mechanism behind the impact of climate policy uncertainty on the corporate cost of debt.

Commercialisation, exogenous shocks and nutrition: Evidence from smallholder farmers in Bangladesh

AbstractThis study empirically analyses the effect of agricultural commercialisation on food spending and nutrition outcomes in Bangladesh. We examine whether exposure to exogenous climate shocks moderates these relationships. We construct individual‐level nutrition measures and time‐varying climate extremes using nationally representative panel data. To address endogeneity concerns, we use an instrument variable approach. Results show that commercialisation leads to an improvement in the broad nutritional profile of individuals. However, the commercialisation–nutrition linkage is weaker for households exposed to frequent climate shocks than those in climate‐resilient areas. Importantly, climate shocks dampen the positive nutritional impacts of commercialisation and exacerbate existing inequalities in the nutritional status within the households. Women and girls appear disproportionately vulnerable to the nutrition‐weakening effects of weather stresses in commercialised agricultural households. This highlights twin policy challenges: strengthening smallholders' resilience to escalating climate risks alongside promoting gender‐equitable, nutrition‐sensitive agricultural commercialisation.

Effects of minimum wage policies on executive compensation contracts: An empirical analysis in China

This paper investigates the impact of minimum wage policies on executive pay-for-performance sensitivity (PPS) in the compensation packages of A-share listed firms in China. Using data from 745 counties between 2007 and 2020, we find that minimum wage policies lead to a decrease in PPS. This finding remains robust through instrumental variable approaches, cross-border matching tests, alternative measurements, and other rigorous tests. Moreover, the negative impact of minimum wage on PPS is more pronounced in companies with higher labor dependency, limited ability to pass on labor costs to customers, and lower risk resilience. These results support the hypothesis that rising labor costs due to increased minimum wage, which lead to performance distortion and heightened risk, promote shareholders to reduce PPS to optimize compensation contracts for value maximization.

An Instrumental Analysis of the Triad Association Between Sugar-Sweetened Beverages, Screen Time, and Dental Caries in Adolescents

Background: Previous studies reported screen time in association with unhealthy dietary behaviors, such as excessive intake of sugar-sweetened beverages leading to dental caries. Thus, we aimed to explore the association between screen time on mobile devices and dental caries experience in adolescents, as well as whether sugar-sweetened beverages would mediate the association. Methods: We analyzed 24,374 junior and senior high school students of age 12 to 17 years from the 2021 “Surveillance for common diseases and health risk factors among students” Project in Jiangsu Province of China. Dental caries experience was determined by the designated dentists. Screen time and consumption of sugar-sweetened beverages were self-reported and treated as a priori risk. We employed an instrumental variable (IV) approach for the current cross-sectional setting. We used the lasso technique to shortlist covariates from a range of confounding factors. Binary logistic regression or ordered logistic regression was performed where appropriate to explore the associations of screen time on mobile devices with dental caries and sugar-sweetened beverages. Results: The prevalence rate of dental caries was 38.4% in the study population. In comparison with <2 h/d screen time on mobile devices, extended screen time (≥2 h/d) was associated with higher dental caries risk (coefficient: 1.27, 95%; confidence interval: 0.80–1.75). Mediation analysis suggested that sugar-sweetened beverage intake might be an independent risk factor for dental caries, instead of the mediator between screen time on mobile devices and dental caries. None of the interaction terms under investigation was statistically significant. Conclusions: Exposure to mobile device screens and sugar-sweetened beverages was associated with dental caries in adolescents. These findings highlighted the importance of increasing awareness of potential risks owing to mobile device usage and sugar-sweetened beverages and the necessity to develop appropriate intervention strategies for school-aged adolescents.

Common ownership and investor‐focused disclosure: Evidence from ESG financial materiality

AbstractIn this study, we investigate whether information demands made by common agents, specifically common institutional owners, drive firms to adopt a reporting framework that enhances the comparability and financial materiality of environmental, social, and governance information. Using a sample of 3659 unique US firms from 2015 to 2021, we collected data on the adoption of the Sustainability Accounting Standards Board's reporting framework—identifying first movers, followers, and non‐adopting firms—and their levels of common institutional ownership. Our results are robust across changes in the levels of common institutional ownership, various combinations of fixed effects, and the application of an instrumental variable approach. Our findings support the idea that investors' demand drives comparability and financial materiality in sustainability reporting and that common ownership enhances such disclosure by alleviating the concern over the proprietary costs of revealing sensitive information. Our study offers new insights into patterns of intra‐industry disclosure behavior and a better understanding of how a group of increasingly significant market participants (i.e., common institutional owners) influences firms' commitment to investor‐focused disclosure.

Empowering rural South Asia: Off-grid solar PV, electricity accessibility, and sustainable agriculture

This study investigates the impact of off-grid solar photovoltaic (PV) systems on electricity accessibility and agricultural sustainability in rural South Asia, employing panel data methodology: least square dummy variable (LSDV) and Lewbel instrumental variable (IV) approach. The findings demonstrate a robust positive association between solar PV adoption and increased electricity access, even when accounting for individual and period-specific factors. Increased electricity access significantly contributes to higher agricultural value added per worker, but not necessarily to the overall share of agriculture in the economy. This analysis also reveals a positive and significant impact of solar PV (SPV) on agricultural value added per worker, independent of rural electrification levels. Heterogeneities across time and context, along with country-specific factors, play crucial roles in shaping these relationships. While factors like government effectiveness and GDP per capita have complex and sometimes counterintuitive effects, access to land, agricultural employment, and capital investments all contribute positively to agricultural sustainability. The Lewbel IV method offers strong impact of SPV on electrification, independent of external factors, and its direct contribution to agricultural output, make it a compelling tool for empowering rural communities and building a more sustainable future in South Asia. Robustness of the result is validated through three approaches: measuring variable averages at three-year sub-periods, applying three-stage least squares (3SLS), and utilizing alternative methods (panel corrected standard errors (PCSE), feasible generalized least squares (FGLS)) to consider various data characteristics. Off-grid solar PV emerges as a game-changer for rural electrification and a catalyst for sustainable agricultural development in South Asia. Governments and development agencies can prioritize investments in solar PV systems to address energy poverty and boost agricultural productivity.

Using genetics to explore complement C5 as a druggable protein in periodontitis.

An excessively activated or dysregulated complement system has been proven to be a vital contributor to the pathogenesis of periodontitis. It has been previously hypothesized that inhibiting the activity of complement component C5 by targeting the C5a receptor is a powerful candidate for treating periodontitis. Here, we apply the drug target instrumental variable (IV) approach to investigate the therapeutic effect of genetically proxied inhibition of C5 on periodontitis. In our primary analysis, we used 26 independent 'cis' single nucleotide polymorphisms as IVs from the vicinity of the encoding locus of C5 that are associated with plasma C5 levels. In a secondary analysis, we assess the validity of our primary findings, exploring the involvement of alternative downstream biomarkers, interleukin 17 (IL-17), interleukin 1β (IL-1β), and tumor necrosis factor (TNF). Summary statistics of plasma levels (C5, IL-17, IL-1β, and TNF) were obtained from a genome-wide association study (GWAS) of 35,559 European descent individuals. We extracted association statistics from a GWAS of 17,353 clinical periodontitis cases and 28,210 European controls. Wald ratios were combined using inverse-variance weighted meta-analysis. In our primary approach, inhibiting C5 reduced the risk of periodontitis (Odds ratio 0.89 per 1 standard deviation reduction in C5; 95% confidence Interval 0.80-0.98, p value=0.022). Our secondary analysis suggests an involvement of IL-17 within the potential causal pathway, but was inconclusive for other biomarkers. The findings from our study suggest that C5 inhibition may reduce the risk of periodontitis, prioritizing C5 inhibitors as a potential adjunctive therapeutic intervention in this disease.

Female Directors and Technological Innovation: Evidence from China

Research on strategic leadership's role in achieving superior performance in technological innovation is still evolving, particularly regarding the effects of female directors and the contextual factors that enhance their effectiveness. This study provides a comprehensive view of female directors’ influence on R&D initiatives, innovation outputs, and innovation efficiency. Using Upper Echelons Theory and Agency Theory as the theoretical framework, the study employs fixed-effect regression for baseline outcomes, addressing endogeneity with prediction modeling, propensity score matching, and an instrumental variable approach on panel data from Chinese listed firms (2008–2021). Findings indicate that female directors not only enhance R&D investment but their presence on the board achieves higher innovation outcomes and ensures innovation efficiency. Findings also reveal that the interaction with CEOs is crucial, as newly appointed CEOs moderate the advisory role of female directors, while CEO power influences their monitoring role. The study also shows that female directors are more effective when they constitute a critical mass on the board rather than merely having token representation. These findings suggest that including women on the board is essential for superior innovation outcomes, especially when resource efficiency is a firm's priority.

Adoption of green production technologies by farmers through traditional and digital agro-technology promotion–An example of physical versus biological control technologies

Traditional and digital agro-technology promotion are two critical methods for disseminating agricultural technology information, which effectively encourages farmers to employ green production technologies. This paper empirically examines the effects of traditional and digital agro-technology promotion on the adoption of green production technologies by 619 apple producers in the primary apple production area of Guanzhong Plain, China, using micro-survey data. The study's findings suggest that both promotion models significantly influence the adoption of green production technologies by farmers. This conclusion remains valid after the instrumental variables approach and a series of robustness tests are implemented to address endogeneity concerns. The heterogeneity analysis revealed that the impact of the two promotion modes on the adoption behavior of green production technologies by farmers varied by scale. Specifically, digital agro-technology promotion had a greater impact on the adoption of physical control technologies by small-scale farmers, while traditional agro-technology promotion had a greater impact on the adoption of biological control technologies by large-scale households. In addition, the technological differences between traditional agrotechnology promotion and digital agrotechnology promotion result in clear complementary and substitution effects. The two modes of promotion have evident complementary effects for biological control technologies. The two modalities of promotion for physical control technologies exhibit complementary effects between social communication-type promotions and traditional agro-technology promotions, as well as substitution effects between short-video promotions and traditional agro-technology promotions.

Automated workforce, financial precarities and family consumption: The importance of demand-side policies under the background of automation applications

The continuous innovation of automation technology is expanding its application in the workplace, with wide-ranging implications for the economy and society. However, it is not yet clear how workplace automation changes people’s consumption behavior. This paper conducts an empirical analysis in this regard based on the Chinese General Social Survey. The main results are shown as follows: (1) One standard deviation increase in automation contributes to an average reduction of 7.073 % in family consumption. This finding is validated by conducting several robustness and endogeneity checks using various measures of automation and consumption, instrumental variable approach, placebo analysis, etc. (2) The mechanism is that automation decreases family income and work-related social capital, resulting in a decline in families’ socioeconomic status and increased financial precarities. In addition, financial uncertainties brought about by automation decrease people’s subjective well-being, expectations for future life and risk appetite, thus prompting them to lower consumption as a precautionary measure to prepare for potential risks caused by the technological change. (3) Automation has greater negative effects on hedonic and developmental consumption, which are about three times the impact on non-hedonic and basic living expenses respectively, thus leading to a downgrade in families’ consumption structure. In addition, its effect is more pronounced for families with lower economic status, having no houses and living in urban areas. This study also highlights the importance of demand-side policies in the application of automation technology by finding that better labor protection is needed to mitigate automation’s adverse consequences for family consumption. In the context of automation’s increasingly profound impact on the society, this research has important policy implications.

Shades of Green: The Impact of Greenwashing on Stock Price Crash Risk

Using a sample of Chinese firms during 2008-2023, we reveal a positive relationship between firms' greenwashing levels and subsequent stock price crash risk. The two-stage regressions based on the instrumental variable approach and the staggered DiD regressions based on China's low-carbon city pilot programs confirm that the relationship is causal. Mechanism tests suggest that firms resort to greenwashing to mask negative information about their sustainability and managerial opportunism, thereby increasing subsequent stock price crash risk. Heterogeneity analysis reinforces this mechanism, showing that the impact of greenwashing is greater for firms with stronger greenwashing incentives, less transparency, and weaker governance mechanisms.

Impact of CSR on stock return resilience during the 2020 public health emergency: Evidence from the Chinese financial market

Corporate Social Responsibility (CSR) can enhance firm value through non-profit channels, but it may also divert operational resources, potentially harming short-term financial performance. A key question in the literature is whether CSR can improve stock return resilience during negative shocks. Drawing on stakeholder theory, we hypothesize that CSR investment enhances stock resilience, though the effect may vary among firms. This paper analyzes financial data from 3153 Chinese listed companies alongside CSR ratings from the Hexun CSR database. Our findings indicate that firms with higher pre-event CSR ratings demonstrated stronger stock performance during the early stages of the public health emergency in 2020. These results remain robust across various checks and are supported by two instrumental variable approaches: local Confucian cultural influence and Lewbel's heteroskedasticity instrument. We further investigate the factors influencing the effectiveness of CSR in protecting firm value, revealing that CSR activities focused on shareholder responsibility are particularly effective. This protective effect is most pronounced in firms facing poorer financial conditions, lower proportions of institutional investors, heightened industrial competition, and those not operating in socially sensitive industries. Overall, our findings provide evidence that active engagement in CSR can enhance a company's resilience to negative shocks during global health crises.

Effect of particulate matter on cognitive function among middle-aged and older adults in China: An instrumental variable approach

Emerging studies have suggested the association of ambient air pollution with cognitive decline; however, causal evidence remains scarce. We aimed to estimate the effect of particulate matter (PM) exposure on overall and domain-specific cognitive function. A total of 14,205 participants aged 45 and above were drawn from the 2015 wave of the China Health and Retirement Longitudinal Study (CHARLS). Cognitive function was assessed using a standardized questionnaire consisting of two domains: episodic memory and mental status. Participants’ exposure to city-level PM (PM1, PM2.5, and PM10) was evaluated using satellite-based spatiotemporal models. To avoid potential endogenous biases, an instrumental variable method with two-stage least squares estimation was employed to examine the effect of air pollution on overall and domain-specific cognitive function. Stratified analysis was further performed based on sociodemographic characteristics. We found PM exposure exerted a significant adverse effect on overall and domain-specific cognitive function, with mental status being more adversely affected as compared to episodic memory. The effect of PM exposure was more pronounced with smaller particle sizes, with PM1 exhibiting the largest effect size. Moreover, participants with lower education were more adversely affected by PM exposure. Our findings add additional evidence of the potential causal role of PM exposure in worsening overall and domain-specific cognitive function. Efforts to further reduce PM are needed to protect the cognitive health of the aging Chinese population.

Do investor reactions to merger announcements shape the writing of SEC filings?

The way filings of mergers and acquisitions (M&A) with the Security Exchange Commission (SEC) are written might depend on investor reactions to initial public announcements of the deal. We examine this investor feedback hypothesis by focusing on the readability and timing of a large sample of SEC documents. We show that acquirers write documents with lower readability and file them faster when investors react negatively to the deal announcement, a finding consistent with strategic obfuscation efforts. The results are robust to alternative empirical choices, such as controlling for deal complexity or the firm's writing style. They are also confirmed using an instrumental variables approach.

An optimized instrument variable selection approach to improve causality estimation in association studies

Mendelian randomization (MR) is an emerging tool for inferring causality in genetic epidemiology. MR studies suffer bias from weak genetic instrument variables (IVs) and horizontal pleiotropy. We introduce a robust integrative framework strictly adhering with STROBE-MR guidelines to improve causality inference through MR studies. We implemented novel t-statistics-based criteria to improve the reliability of selected IVs followed by various MR methods. Further, we include sensitivity analyses to remove horizontal-pleiotropy bias. For functional validation, we perform enrichment analysis of identified causal SNPs. We demonstrate effectiveness of our proposed approach on 5 different MR datasets selected from diverse populations. Our pipeline outperforms its counterpart MR analyses using default parameters on these datasets. Notably, we found a significant association between total cholesterol and coronary artery disease (P = 1.16 × 10−71) in a single-sample dataset using our pipeline. Contrarily, this same association was deemed ambiguous while using default parameters. Moreover, in a two-sample dataset, we uncover 13 new causal SNPs with enhanced statistical significance (P = 1.06 × 10−11) for liver-iron-content and liver-cell-carcinoma. Likewise, these SNPs remained undetected using the default parameters (P = 7.58 × 10−4). Furthermore, our analysis confirmed previously known pathways, such as hyperlipidemia in heart diseases and gene ME1 in liver cancer. In conclusion, we propose a robust and powerful framework to infer causality across diverse populations and easily adaptable to different diseases.

Regional bombs and firm investment decisions: Evidence from the Vietnam War

This study examines the impact of historical bomb density on the investment decisions of Vietnamese firms, particularly in infrastructure. Employing an instrumental variable approach, this study examines the causal relationship between bomb density and tangible asset investments. The findings indicate that bomb density significantly influences these investments, with infrastructure quality and literacy rates as mediating factors.

Uncertainty and innovation in renewable energy

This paper empirically investigates the impact of economic and policy uncertainty on green innovation for a sample of 81 advanced and emerging market economies during the period 1976–2020. Our results show that increases in uncertainty lead to a long-lasting decrease in green innovation, measured by the number of new green energy patents. This effect holds for a wide set of technologies, it is larger during recessions and periods of higher financial stress, and in countries with less stringent environment protection regulations. Importantly, the effect of uncertainty on green patents is larger than on non-green patents. Results are robust to several sensitivity tests, including an instrumental variable approach and a difference-in-differences strategy.

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.