Natural Experiment Setting Research Articles

Corporate Governance Research Opportunities in Nigeria: A National Development Issue

This paper presents a number of research opportunities in corporate governance in Nigeria. Corporate governance has come along with changes in Nigeria regulatory framework for financial reporting and corporate governance code during the recent years. The researcher identified some important areas where research can help advance our knowledge and provide relevant information for policy makers. These research areas include audit firm governance, corporate level of compliance on corporate governance; Public sector code of governance; adoption of Not-for-profit governance code by such organisations in Nigeria. The research questions that were raised are of global interest, but the Nigeria environment provides some distinctive natural experimental settings to address these questions.

Intangible investments and voluntary delisting

PurposeDrawing on a cost–benefit perspective, this paper aims to explore the relation between information asymmetry and the decision to delist from stock exchanges during periods of uncertainty. Specifically, it investigates the role of firms’ intangible investments and the availability of alternative sources of finance on the decision to delist from foreign stock markets.Design/methodology/approachThe study takes advantage of a natural experiment in which cross-listed Chinese firms facing uncertainty in US markets because of widespread allegations of accounting fraud decide on whether to remain listed or voluntarily delist. The decision to delist is modelled as a function of the level of information asymmetry between firms and their stakeholders and the availability of alternative financing, while controlling for other drivers of firms’ delisting decision. The data used in the empirical analyses cover a hand-collected sample of 91 Chinese firms voluntarily delisting from US stock markets between 2010 and 2016. This sample is matched with an equal sample of Chinese firms, which remained listed in US stock markets during the same period. A probit regression model accounting for fixed effects is used.FindingsThere is a significant positive relationship between investments in intangible assets and firms’ decision to delist. Moreover, the positive intangibles−delisting nexus is accentuated by the availability of alternative sources of financing. Collectively, the results are consistent with the theoretical argument that the higher information asymmetry associated with intangible assets may increase the cost of staying listed on stock exchanges, particularly in periods of uncertainty (captured in this study by accounting fraud allegations targeting cross-listed firms). The results have important implications for corporate managers, capital market participants and policymakers.Practical implicationsPolicymakers and standard setters must continue to work to improve the accounting regulations of intangible assets and to promote the adoption of global accounting standard across both emerging and advanced economies.Originality/valueThe study exploits a unique natural experimental setting to explore why cross-listed firms delist. The underlying theoretical framework to explain delisting is new. This framework captures the role of information asymmetry, uncertainty and alternative financing in explaining the cost and benefits of remaining listed on a foreign market.

The Effects of Digital Textbooks on Students' Academic Performance, Learning Skills, and Digital Addiction

Digital textbooks, which are equipped with various learning resources including multimedia aids, assessment questions, and hyperlinks to external resources, can be an important channel for harnessing technologies in classrooms. Korea’s digital textbook experiment provides a unique empirical setting to examine multiple effects—utilization, earliness, and cumulative effects—that digital textbooks have on students’ academic performance, academic interest, and learning skills. We employ a propensity score weighting method and instrumental variable strategy to find that greater usage of digital textbooks in class improves students’ academic outcomes (i.e. utilization effect). For example, students’ social studies grades increase by a 0.30 standard deviation and science grades increase by a 0.37 standard deviation. We also find greater improvements in academic performance for low-achieving students. We additionally exploit a unique natural experiment setting and use a difference-in-differences strategy to find that students who started using digital textbooks at an earlier age show greater improvements in their academic outcomes (i.e. earliness effect). Furthermore, we examine whether greater cumulative exposure to digital textbooks improves students’ academic outcomes (i.e. cumulative effect).

Micro-responses to Shocks: Pricing, Promotion, and Entry

We study the market response to firm-specific demand shocks in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese products firms. In Saudi Arabia their market share collapsed from 16.5% in January to below 1% in March and never fully recovered: by 2009 it was 6.3%. By analyzing micro-level (scanner) price and sales data, we find that: (i) Danish firms lowered prices but kept the product mix the same; (ii) non-Danish firms kept prices constant but changed their product mix by introducing new products and new product bundles; and (iii) non-Danish firms chose to introduce products that were similar to the Danish in characteristic space in order to compete head-to-head. We complement the analysis with a theoretical framework that helps to account for our main findings.

The Remote-Sensing Bridge: Benefits of Leveraging the Seasonal Lags in Wheat Calendars between the Northern and Southern Hemispheres

While it remains highly challenging to timely and accurately forecast cereal production before harvest, recent progress in the assessment of crop growing conditions using remote-sensing (RS) data and techniques allows to effectively estimate cereal yields one or two months before harvest at national scales. Once such forecasts become highly accurate and available to the public in a timely manner, farmers in the Northern and Southern Hemispheres will be able to use this information to adjust their production plan by leveraging the seasonal lags in crop calendars between the two hemispheres. Such a response could help reduce supply and price volatilities in world food market. This research aims to quantify the economic benefits of this RS forecasting triggered response in a natural experiment setting, which is based on the case of a poor wheat harvest in Russia and Ukraine in 2012. The simulation tool is a world-trade general equilibrium model with a land allocation module. The results show that the supply responses in the South can mitigate wheat price spikes of regional markets and reduce the adversary welfare shock to African households.

There and back again: Adaptation after repeated rule changes of the game

Rule changes have offered a natural experimental setting in the sports environment and beyond for many years. However, an understanding of human behavioural adaptation processes after repeated rule changes is missing from the extant literature. The NBA offers a unique setting in which the three-point line was moved (shortened) for a period of three seasons (1994–95 to 1996–97) and then returned (lengthened) to its original position (pre 1994–95). We are therefore not only able to explore the behavioural changes after reducing distance restrictions but also how players re-adapt to the original, more difficult condition. Using a dataset of almost 700,000 player-game level observations we find that (on average) players instantaneously adjust to rule changes. Good scorers and younger players take particular advantage of the situation. On the other hand, older players decrease their 3-point attempt ratio and do not readjust after a return to the original distance. Positive feedback regarding 3-point efficiency encourages players to try more shots while efficiency gains in 2-point shots reduces this incentive, indicating that players may follow the heuristic of “win-stay”. Finally, making 3-point shots easier for a couple of seasons has positive externalities on efficiency that last more than a decade after the re-adjustment of the distance.

Evaluating pedagogy in educating business majors: an empirical analysis of teaching accounting without debits and credits

An upper-level intermediate accounting course taught at two large mid-west universities in the United States provides a natural experimental setting to examine whether teaching debits/credits in the introductory financial accounting course matters. Students in the upper-level course fall into two groups: those who learned debits/credits in the introductory course and those who weren’t. The performance of both groups is evaluated during the semester while they take the upper level accounting course. Regression results show that the prior knowledge of debits/credits offers only a mild advantage in the first mid-term exam, but not thereafter. Results also indicate that grade point average (standardized tests like ACT scores) are a good (not a good) predictor of the performance in the upper-level accounting class. These results suggest that teaching debits and credits in the introductory accounting course does not provide any advantage in learning the material of upper-level accounting course.

Social capital as an instrument for common pool resource management: a case study of irrigation management in Sri Lanka

Abstract Although social capital is considered to be a key instrument for common pool resource (CPR) management, its effect among heterogenous players such as upstream and downstream farmers along an irrigation canal is not clear. Using a combination of lab-in-the-field experiments to measure social capital and household survey data in a unique natural experimental setting, this study shows that upstream farmers with higher trust toward the downstream farmers are more likely to be satisfied with their water usage. This finding is consistent with the hypothesis that upstream farmers with higher trust demand less water and leave more water in a canal because they expect reciprocal behaviour from downstream farmers. Since the incentive structures of irrigation management closely resemble those of the standard experiments to measure social capital, this finding also provides a unique case study of the real-world relevance of these experiments.

Is Uber Helping or Hurting Mass Transit? An Empirical Investigation

Sharing economy reshapes the distribution of unused or underutilized asset through digital platforms to individuals who are willing to pay for the services. The new economy model has introduced dramatic impact on the traditional industries by matching the demand and supply in real time. In this paper, we examine how the entry of Uber, a ride-sharing services digital platform, influences the demand of public transportation. Significant debate has surrounded whether the new ride-sharing model siphoned riders from public transit, or made transit feasible for more riders. However, limited empirical research has been done to uncover whether Uber is helping or hurting public transportation systems. Leveraging a natural experiment setting, the entry of Uber, with a difference-in-differences approach, we find a significant drop in the number of passenger trips with bus. Further, our results suggest that the effect of Uber is not uniform – the reduction in bus passenger trips is mitigated when the proportion of old age people in a local urban area is large; the decrease is amplified when the populations of disable people, including with language difficulty, and self-employed people are large. However, the moderating effect of poverty is mixed. We discuss the implications for research and practice.

A prospect theory-based analysis of housing satisfaction with relocations: Field evidence from China

This paper proposes a theoretical framework based on prospect theory to explain the determinants of housing satisfaction among relocated residents. We test the two most important elements of prospect theory, namely, reference point dependence and loss aversion. For reference point dependence, we investigate the presence of both internal and external reference points; for loss aversion, we test its effect directly by comparing coefficients in loss and gain domains and indirectly by verifying the presence of the endowment effect. Our study area is Xiamen, China, where the recent urbanization development provides a natural experiment setting to reliably test our hypotheses. Our empirical findings provide convincing evidence to support the four hypotheses developed from prospect theory, indicating that prospect theory is a working theory to better understand the motivations and concerns of relocated residents. Policy recommendations are subsequently derived to reduce social conflicts and disharmony caused by urban redevelopment and relocations.

Effectiveness of EU Regional Policy: Evidence from a Natural Experiment in Finland

European Union regional policy is implemented through structural funds, such as the European Regional Development Fund (ERDF), which support investment in peripheral regions of the EU. We studied the effects of EU regional policy on key economic variables using a rare natural experiment setting. In 2007, parts of regions that were previously covered by the ERDF programme for Western Finland were reallocated to the ERDF programme for Northern Finland, with higher support intensity per capita. This area reallocation was caused by the newly adopted EU legislation regulating the classification of regional statistical areas. With a detailed postal code area dataset and a difference-in-differences estimator, we discovered desirable regional policy effects on unemployment and the number of jobs.

Early Voting Changes and Voter Turnout: North Carolina in the 2016 General Election

North Carolina offers its residents the opportunity to cast early in-person (EIP) ballots prior to Election Day, a practice known locally as “One-Stop” voting. Following a successful legal challenge to the state’s controversial 2013 Voter Information and Verification Act, North Carolina’s 100 counties were given wide discretion over the hours and locations of EIP voting for the 2016 General Election. This discretion yielded a patchwork of election practices across the state, providing us with a set of natural experiments to study the effect of changes in early voting hours on voter turnout. Drawing on individual-level voting records from the North Carolina State Board of Elections, our research design matches voters on race, party, and geography. We find little evidence that changes to early opportunities in North Carolina had uniform effects on voter turnout. Nonetheless, we do identify areas in the presidential battleground state where voters appear to have reacted to local changes in early voting availability, albeit not always in directions consistent with the existing literature. We suspect that effects of changes to early voting rules are conditional on local conditions, and future research on the effects of election law changes on turnout should explore these conditions in detail.

Encountering female politicians

The mandated exposure effect on voting represents a mechanism through which affirmative action policies such as quotas can improve prospects for candidates from underrepresented groups. In this paper, we identify an exposure effect by exploiting unintended variation in female candidates’ electoral results in a natural experimental setting. In a 2006 local council election in Korea, the names of candidates nominated by the same party for a ward appeared on the ballot in alphabetical order (based on the Korean alphabet). As a result, in certain districts, some female candidates were arbitrarily elected, based on their name-order advantage. In the subsequent election, those elected females were more likely to be nominated by the party and to win seats again. However, the accidental exposure to female politicians failed to generate positive spillover for other female candidates.

Incentive Effects of Cash Benefits among Young People. A Natural Experiment from Norway

AbstractPrior research on active labour market programmes (ALMPs) for young people has revealed either no effect or negative effects on transition rates into employment. In addition to accessing the programme content, participation in ALMPs bestows the right to a supplementary benefit. Yet, the direct effect of this benefit on the use and outcome of ALMPs remains largely unknown. We study the effects of a Norwegian policy that pays much higher benefits to recipients when they reach 19 years of age. This policy provides a natural experimental setting that allows us to utilise the age discontinuity to observe whether young people are more likely to become benefit recipients after their nineteenth birthday, and to estimate the effect of benefits on the labour supply. As age determines the increase in benefits rather than need, it creates a random and exogenous variation in the criteria for allocating cash benefits. We use Norwegian administrative register data that cover all 18 to 19 year olds during the period 2003 to 2012. We find no effect on programme take-up or employment rates. Hence, benefits do not work against the aim of ALMPs and young people's responsiveness to financial incentives cannot explain such programmes’ lack of effects.

Disclosure of pension asset allocation and expected rate of return management

PurposeThe purpose of this paper is to examine whether the expected rate of return (ERR) management is related to disclosure of pension asset allocation. FAS 132R(1), which requires firms to disaggregate the detailed categories of pension asset allocation, provides a natural experiment setting for investigating the effect of enhanced transparency on firm behavior.Design/methodology/approachThe authors focus on the variation of voluntary disclosure and its effect on ERR management under the two different reporting regimes. The authors measure the variation of voluntary disclosure of the pension asset allocations in the pre-period of FAS 132R(1), by using the self-constructed disclosure score.FindingsFirst, firms create flexibility in their choice of ERR through opaque disclosure of pension asset allocation. Next, firms with poor disclosures are more likely to adjust ERR downward when accounting standards require greater transparency, implying that, for firms with poor disclosures, mandated transparency in pension asset allocation plays a vital role in reducing the ERR management.Research limitations/implicationsThe authors directly illustrate the impact of FAS 132R(1) on ERR management. The authors find that the impact of mandated transparency is not uniform across firms. Next, this study highlights the importance of disclosure in restricting managers’ earnings management motivation.Originality/valueThe authors hand collect the asset allocations under pre-FAS 132R(1) period from the 10-K pension footnotes for all S&P 500 firms, which allows the authors to identify the disclosure variation amongst the firms. Based on the variation of disclosure, the authors construct the ordinal measure of disclosure scores on which the testing indicator variables are built.

Behavioral Analysis of Housing Satisfaction with Relocations: Field Evidence from China

This paper proposed a theoretical framework based on prospect theory to explain the determinants of housing satisfaction among relocated residents. We test the two most important elements of prospect theory, namely, reference point dependence and loss aversion. For reference point dependence, we investigate the presence of both internal and external reference points; for loss aversion, we test its effect directly by comparing coefficients in loss and gain domains and indirectly by verifying the presence of the endowment effect. Our study area is Xiamen, China, where the recent urbanization frenzy provides a natural experiment setting to reliably test our hypotheses. Our empirical findings provide convincing evidence to support the four hypotheses developed from prospect theory, indicating that prospect theory is a working theory to better understand the motivations and concerns of relocated residents. Policy recommendations are subsequently derived to reduce social conflicts and disharmony caused by urban redevelopment and relocations.

Product market competition and debt choice

Motivated by prior research on the informational and monitoring role of product market competition, we examine how competitive pressure affects firms' choice between bank debt and public debt. Using a sample of 3675 U.S. firms over the period 2001–2013, we find that competitive pressure from the product market leads firms to rely less on bank debt financing. In a natural experiment setting, we also find that there is a significant decrease in firm reliance on bank debt after large import tariff reductions. In additional analyses, we show that the effect of competitive pressure on debt choice is more pronounced for firms with greater exposure to competition, higher financial constraints, and weaker governance practices. Moreover, we find that product market competition is associated with long-term maturity debt. Taken together, our study generates the important insight that external governance pressure from the product market acts as an alternate governance mechanism for bank debt monitoring.

Boom‐Baby CEOs, Career Experience, and Risk Taking: A Natural Experiment Using Chinese CEOs’ Growth Paths

AbstractChina's economy represents a unique experimental environment, in that it has undergone a successful transformation from a planned to a more open system. Leveraging this natural experimental setting, this study examines the impacts of CEOs’ formative experiences on their risk‐taking behavior. Two events likely constitute formative experiences for CEOs: economic reforms that commenced in 1978 and their prior career experiences. In turn, CEOs’ risk tolerance attitudes likely reflect the influences of these significant events. The results show that CEOs who experienced economic reforms in their early adult life exhibit higher risk‐taking likelihood and greater risk tolerance than those who grew up during the planned economy era. Furthermore, firm performance achieved by CEOs’ risk taking is significantly better when CEOs originally started working in and then remained within business sectors.

Beyond solving the last mile problem: the substitution effects of bike-sharing on a ride-sharing platform

ABSTRACTRide-sharing services have been popularly used for both short-distance and long-distance trips. The recent introduction and growth of bike-sharing services can help solve the last mile problem and provide a good mobility option, especially for short-distance travellers. We examine the extent to which bike-sharing platforms solve the last mile problem and affect short-distance travels by studying their impacts on ride-sharing orders. To do so, we exploit a natural experiment setting in which bike-sharing platforms were newly launched in Chengdu, China. We combine detailed granular one-month order data collected from DiDi with Chengdu’s geographic information data from Gaode Map, a Chinese leading map provider. We find that the introduction of bike-sharing platforms significantly reduces short-distance ride-sharing orders. We additionally examine the heterogeneity in substitution effects across different pickup and drop-off locations and find that location attributes significantly affect bike-sharing’s substitution effects on ride-sharing platforms.

The Superior Peer Improves Me: Evidence from Swimming Data

This study examined the peer effects of newcomer on the performance of existing members of teams, based on comparing the performances of swimming team members before and after the arrival of a newcomer. The identification strategy was similar to a natural experimental setting. This study found that the performance of an existing member of a team improves when a newcomer joins the team and that this effect is larger when the newcomer is a superior to the original team members.