Partial Adjustment Model Research Articles

Navigating the precarious path: Understanding the dualisation of the Italian labour market through the lens of involuntary part-time employment

This article investigates the surge in Involuntary Part-Time (IPT) employment in Italy from 2004 to 2019, exploring its impact on various socio-economic groups and adopting a spatial perspective. The study tests the hypothesis that technological shifts, specifically routine biased technological change (RBTC), and the expansion of household substitution services contribute to IPT growth. There is a widening negative gap in IPT prevalence among marginalized groups - women, young, and less skilled workers. After controlling for sector and occupation, the higher IPT propensity diminishes but remains significant, hinting at persistent discrimination. Additionally, segregation into more exposed occupations and sectors intensifies over time. Leveraging province-level indicators, and using a Partial Adjustment model, there is statistical support for RBTC’s correlation with IPT, especially among women. The impact of household substitution services is notably pronounced for women, highlighting sector segregation.

Economic Analysis of the Impact of Waste on the Production and Consumption of Dates in Saudi Arabia

The goal of this study was to determine how the loss of dates affected food security in Saudi Arabia from 2000 to 2021. The researchers achieved this by using food security indicators, economic equations to quantify agricultural resource losses, and econometric analyses to develop a partial adjustment model. The results show that dates are considered a self-sufficient crop as well as an export crop, as the state resorts to exporting the surplus instead of storing it for local consumption. During the study period, there was an increase in the period of sufficiency in date production for local consumption and the period of coverage of imports for local consumption. In 2000, the volume of dates lost increased by approximately 131.22%. The total loss of land and water resources reached 31,918.4 hectares and 324.759 million cubic meters, respectively. The value of the partial adjustment coefficient (λ) indicates that about 81.1% of the imbalance in the equilibrium between the actual and equilibrium levels is adjusted within one year. Loss is considered one of the most important factors that determine food security for dates, in addition to the total value of loans financed to date factories, the total population, and the level of technological progress in the marketing and storage of dates. It was found that a change of 10% in these variables leads to a change in food security for dates of (−2.37%), 0.07, (−15.33%), and 0.58%, respectively, and the adjusted coefficient of determination was estimated at 0.93. This study recommends the following: (1) expanding the use of modern technologies for date post-harvest transportation and storage, and (2) increasing support and loans allocated to date factories to increase warehouses for cooling and storage to accommodate the increase in production and surplus consumption.

Ownership structure, adjustment speed toward target leverage and CEO power

PurposeThis study aims to investigate the impact of ownership structure on firm adjustment speed toward the target leverage.Design/methodology/approachThe study employs a partial adjustment model on a sample of 694 publicly listed firms from 2007 to 2021 in Vietnam.FindingsThe study finds that state and foreign ownerships inhibit the speed at which firms approach their optimal level of debt. Interestingly, this negative association is less pronounced in firms managed by powerful CEOs (duality CEOs; highly experienced CEOs; CEOs who they own or their families possess a large number of shares). Further, state and foreign ownership are found to be positively associated with firm performance. This beneficial impact weakens, however, when firms use more debts.Originality/valueThe outcome reveals that having a powerful CEO on board can help businesses in this emerging market counteract the detrimental effects that foreign and state ownership leave on the process of adjusting leverage.

Commercial bank NSFR adjustment and risk: Evidence from China

The net stable funding ratio (NSFR) is a critical monitoring indicator of bank liquidity risk introduced under the Basel III accord in 2009. This study used the partial adjustment model to analyze the NSFR adjustment behavior of Chinese commercial banks, leading to the following four findings. First, banks have been undertaking active liquidity adjustment while exceeding global and Chinese minimum standards. Second, the NSFR’s target level and adjustment speed are significantly higher than those of foreign banks. Third, the target NSFR gap is essential to the NSFR’s positive adjustment. Fourth, a higher target level and steady adjustment speed help reduce loss from systemic risk. This paper suggests establishing three liquidity risk firewalls, providing an essential reference for understanding NSFR adjustment in Chinese commercial banks. The study also provides practical significance for policy-level assessments regarding the impact of implementing NSFR supervision and establishing liquidity risk firewalls.

Pengaruh Liberalisasi Arus Modal terhadap Pertumbuhan Ekonomi ASEAN-5

This study aims to examine the relationship between capital flow liberalization and economic growth in ASEAN-5. This research is a quantitative study that uses data: GDP, Gross Capital Formation, financial disclosure seen from the Chinn-Ito index for the period 2000-2017 in 5 ASEAN countries namely Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Data were processed using panel data regression analysis and specifically for Indonesia, Partial Adjustment Model (PAM) regression was performed. The results of this study indicate that financial openness seen from the Chinn-Ito index has a negative and significant influence on the economic growth of ASEAN-5 countries. Capital flows have a positive and significant impact on the economic growth of ASEAN-5 countries. Meanwhile, the PAM (Partial Adjustment Model) regression model shows that capital flows have a positive and significant influence on Indonesia's economic growth both in the short and long term, while financial openness has a negative and significant impact on Indonesia's economic growth both in the short and long term.

A critical assessment of the partial leverage adjustment model: Target-overshooting behavior

More than 30 percent of Compustat firms overshoot target leverage within one to two years, contrary to the partial leverage adjustment model’s (PLAM) central tenet of incremental adjustments year by year. Because overshooting involves large adjustments, the presence of overshooting firms can skew researchers’ inferences drawn from the PLAM. This study reveals that if we remove overshooting firms from the dataset, the estimated leverage-adjustment speed is much lower and, more importantly, the average firm stops moving toward the target well before the halfway point. Ironically, the conclusion of firms’ partial and steady movements toward target leverage in the PLAM research looks like a statistical artifact arising from the preponderance of overshooting.

Targeting behavior and capital structure theories: An empirical analysis of gulf cooperation council countries

This study examined the dynamic nature of capital structure decisions and the effectiveness of trade-off, pecking order, and market timing theories in explaining the changes in leverage ratios. A partial adjustment model was used to examine the practice of setting a target (optimal) leverage, estimate firms’ speeds of adjustment in reaching their target leverages, and identify the capital structure theories that best explain the changes in leverage levels of firms in the Gulf Cooperation Council countries. Firms in these countries reach their target leverages at estimated average speeds of adjustment of 59.8 %–72 % annually. These speeds of adjustment are sensitive to country- and firm-specific characteristics. The targeting behavior factor of the trade-off theory better explains the changes in capital structure compared with the pecking order or market timing theories.

Impact of Water Deficit and Virtual Water Trade on the Costs of Producing and Exporting Saudi Dates

The study aimed to estimate the current and projected volume of virtual water trade, evaluate the water balance of dates in Saudi Arabia, and compare the cash return of a unit of water with its cost. Using the partial adjustment model, the most important results were that the water balance deficit in dates amounted to about 9.10 billion m3 during the study period (2000–2021). Based on the forecasting models used, date exports are expected to grow by about 21% annually during the period (2022–2030). By comparing the cash return of a unit of water used in the production of dates with the cost of its production, it was found that it represents 62% of the value of the cost of water used in the production of the unit. It was also found that non-Gulf Arab countries purchase about 45% of the Kingdom’s date exports with a cash return of approximately $0.20/m3 from virtual water. The cash return per unit of water in other countries is estimated to be $0.50 to $0.69/m3. Therefore, the study recommends reconsidering the export of dates and directing them toward high-yield markets to maximize the cash return of virtual water units. KEYWORDS water resources, cash return, water unit, water balance, partial adjustment, foreign trade

Analysis of Sugar Production Based on Productivity and Recovery Rate

The present investigation emphasizes growth and instability of sugarcane in Maharashtra. Sugarcane is the important cash crop of the Maharashtra. An effort has been made in this study to examine the trends in area, production, productivity of sugarcane and to determine the factors which are contributing toward productivity of sugarcane in major sugar producing states of Uttar Pradesh and Maharashtra. It has been observed that area expansion has significantly contributed towards increased production of sugarcane but productivity has remained stagnant. it was found to be higher for Maharashtra than Uttar Pradesh. The data obtained from secondary sources were analysed to examine the factors which effect on the sugarcane acreage in Maharashtra state and Uttar Pradesh for analyse by using linear multiple regression based on Neronian Partial Adjustment Model. The present project attempts to study the trend and growth rates of Sugarcane production Maharashtra. The time series data on area, production and productivity of Sugarcane pertaining to the period 1950-51 to2022-23 were used for the study. useful information for further planning and corrective measures for future development of Maharashtra State. The area, production and productivity of sugarcane crop have been estimated in Maharashtra district. In this study we fit the linear regression model on the data and find the coefficient of model and fit the predictive model. Also, we check the multicollinearity in the data by VIF and find the ridge regression for the given data.

Investment Uncertainties and Economic Growth in Sub-Saharan Africa

Abstract This study investigated the effect of uncertainties, segmented into macroeconomic and political components, on investment in sub-Saharan Africa, with thirty-one countries represented. The analyses were further nuanced to trace the investment-growth link within this set of countries. Two investment types—private and foreign direct—were covered in separate analyses. The sample of countries was chosen through stratified sampling to include oil-exporting, other resource-intensive, and nonresource-endowed countries. The Jorgenson investment model, which explicitly incorporates uncertainty into the investment decision-making process using adaptive and extrapolative approaches, was adopted for the study, and augmented with the partial adjustment model to address the assumption that the user cost of capital adjusts instantaneously. For the two investment types considered, the impartial contract and foreign investment model and the country risk and private investment model were adopted, respectively. The two-way system generalized method of moments technique was employed for estimation. The results showed that foreign direct investment (FDI) in oil-exporting and other resource-intensive countries was only sensitive to macroeconomic uncertainty, while FDI in nonresource-intensive countries was vulnerable to both macroeconomic and political uncertainties. This finding strengthens the belief that, regardless of political instability, natural resources are a major attraction for foreign investors in sub-Saharan Africa. Finally, the study revealed that private investment in the resource-intensive region was primarily affected by macroeconomic uncertainty, whereas its political vulnerability was mainly observed in the oil-exporting and nonresource-intensive regions. To mitigate investment uncertainties in sub-Saharan Africa, it is crucial to focus on minimizing the volatility of interconnected price variables, requiring collaborative efforts.

Does managerial overconfidence affect capital structure rebalancing for entrepreneurial firms?

PurposeThe behavioural theory adds a new paradigm of analysis with the assumptions of the decision maker’s cognitive biases and their repercussions on financing decisions. The aim of the study is to analyse the repercussions of these biases on the adjustment speed of firm’s capital structure toward the optimal level.Design/methodology/approachBased on a partial adjustment model, the study uses the Dynamic Panel Fractional estimator to analyse panel data from 4,990 Portuguese entrepreneurial firms.FindingsThe results show that the cognitive overconfidence bias impacts the entrepreneurial firm’s capital structure. In fact, the firms run by overconfident managers adjust more slowly than their counterparts. Furthermore, the findings suggest that entrepreneurial firms make relatively fast adjustments toward the optimal debt level and follow a hierarchical financing order in the funding process.Practical implicationsThe results of this paper are not only interesting to the academia, but also contain practical implications for corporate, institutional and business policy and governance. First, the paper introduces a new measure of cognitive bias in optimistic managers, which is useful for current and future academic research. Also, in practical terms, the findings of the paper reveal that when a company is contemplating hiring a manager, it should consider whether they need an optimistic or non-optimistic manager based on the company's present life cycle or situation.Originality/valueThe current analysis extends the existing literature. The study suggests that financial classical and behavioural paradigms should not be separated, which can provide evidence to help narrow the gap between these two major perspectives.

Price Elasticity of Electricity Consumption in Japan, 1990 to 2015

This study examines regional price elasticities in electricity consumption to offer valuable insights for policymaking in electricity demand-side management in Japan. By employing a partial adjustment model and utilizing data from regional electric utilities, the study estimates regional electricity demand functions. The analysis reveals that, within the residential sector, the size of houses plays a significant role in explaining regional variations in price elasticity. Likewise, in the industrial sector, the presence or absence of private power generation facilities in firms significantly influences regional disparities in price elasticity. These findings hold substantial implications for enhancing the cost-effectiveness of electricity consumption regulations and policies. JEL Classification: Q41, C01, R11.

Determinants of Supply Response of Coconut Cultivation in Sri Lanka

Coconut (Cocos nucifera L) is a major plantation crop grown in Sri Lanka. The output has been mainly used for local consumption of fresh nuts, coconut-based industries within the country, and coconut exports. The instability of coconut supply seriously affects local as well as export market potentials. Identification of various factors and the extent to which those affected the current coconut supply have not been examined in the recent empirical work. This study examines the supply response of coconut in Sri Lanka, using Nerlovian Partial Adjustment model. The study used time series data of total coconut production, output price, rainfall, fertilizer amount, land extent, technology, and the presence of fertilizer subsidy for a period of 30 years (1985-2015) for the analysis. Among the different types of functional forms tested, the log-linear model was selected as the best fit model (R2=0.894). The model was tested for autocorrelation and heteroscedasticity using the Durbin-Watson statistic and the Breusch-pagan test, respectively. The results revealed that the variables, i.e.two years lagged price, one year lagged rainfall, and two years lagged fertilizer amount affect the coconut production significantly (p<0.05). The short-run and long-run price elasticities were estimated for two years lagged output price.The output price is the most influential factor in short run with the elasticity of 0.33 (two year lagged price variables were considered) while rainfall is the most important determinant of coconut production in Sri Lanka. The study concludes that coconut production in the country tends to change as a response to the changes in coconut price both in the short-run and long-run. Further, rainfall and amount of fertilizer applied are the two main factors that determine the coconut supply in Sri Lanka.

Dynamics of speed of leverage adjustment and financial distress in the Indian steel industry

Business managers strive to attain the optimal capital structure (OCS), which allows them to raise capital at a minimal cost, thereby maximising their returns. Balancing risk and reward is crucial in determining the target capital structure. Therefore, understanding the optimal leverage ratio and the Speed at which leverage adjustments are made is vital to managers. This study examines the optimal leverage ratio, the speed of adjustment, and the factors contributing to achieving the target capital structure for select 208 steel firms, particularly in an emerging economy like the Indian steel industry. A partial adjustment model is utilised, employing the Generalised Method of Moments (GMM) technique. Additionally, the Altman Z-score is employed to evaluate the financial distress of these steel firms. Very few studies have specifically focused on determining the Speed of adjustment (SOA) using GMM of emerging economies like the Indian steel industry. The findings indicate that steel firms take approximately 2.13 years to reach their target leverage, supporting the existence of the dynamic trade-off theory. The results also highlight the relationship of selected variables (Profitability, Growth, Size, Tangibility, NDTS, Liquidity, and Financial Distress) with the Speed of leverage adjustment and the weak financial position of these businesses.

Does economic policy uncertainty matter for a firm's leverage and speed of adjustment?

PurposeThis research intends to investigate the impact of economic policy uncertainty (EPU) on the firm's leverage and its adjustment speed.Design/methodology/approachThis study applies dynamic panel data modeling by using a partial adjustment model. The study is based on secondary data of the non-financial firms that are listed on the Pakistan stock exchange. For the analysis purpose, the study applies the generalized method of moments (GMM) estimation technique and uses a newly developed text-based measure of economic policy uncertainty.FindingsThe results show the negative impact of EPU on leverage decisions but a positive impact of EPU on leverage speed of adjustment for both, short-run and long-run economic policy shocks. Additional analysis reveals that the negative influence of long-run policy shocks on leverage decisions is moderated through profitability, and the negative influence of short-run policy shocks on leverage is moderated through firm size, tangibility and available growth prospects. However, the significant positive impact of EPU on the leverage speed of adjustment in both short and long-term policy shocks indicates that the speed of adjustment for these firms is not affected by policy shocks.Originality/valueThis research contributes to the existing literature on capital structure dynamics,by investigating the impact of EPU on firm financing decisions and estimating the adjustment speed of capital structure in a developing market context. The study also extends the existing literature by applying the concept of long-run and short-run economic policy uncertainty in the capital structure dynamic framework. Additionally, the new news-based measure of EPU is used. Moreover, it also looks into the COVID-19 effect on the relationship.

Signaling Effect of Dividend on Firm’s Future Performance: A Study of Select Emerging Economies

The present study examines the signaling effects of a firm’s dividend policy in developing economies (India, Brazil, China, and Taiwan) from 2010 to 2020 in 4,630 companies’ observations. It highlights that the Indian market indicates greater intensity to the signaling model, though no such reactions were recorded in the Brazilian and Taiwanese markets. Further, the Lintner partial adjustment model reveals that companies in India adjust dividends at a slower rate as compared to other emerging markets like China, Brazil, and Taiwan. We found that the Lintner model is the behavioral consequence of the applicability or non-applicability of dividend signaling theory in these emerging economies. JEL Codes: G35, C32, G15

Modeling the Stackelberg game with a boundedly rational follower in deterioration supply chain-based interaction with the leader’s hybrid pricing strategy

In the conventional Stackelberg game, all players are perfect optimizers, able to choose the best responses to their competitors' decisions. In contrast, in the Stackelberg game with bounded rationality, players are unable to optimize their individual payoffs and face strategic uncertainty due to the performance of competitors. In real games, players are usually unaware of the performance of their competitors. Therefore, to survive in the competitive market, they are forced to make decisions under conditions of bounded rationality. Due to the importance of decision-making in this situation, in this study, the Stackelberg game of deteriorating inventory within a two-level supply chain was developed considering the concept of bounded rationality. The follower in the Stackelberg game (manufacturer) is poorly aware of the leader's performance in terms of order size. Therefore, she/he manufactures the products at rates with normal distribution. For the first time, an algorithm based on Bayesian conjugate pair was proposed to solve the Stackelberg game with bounded rationality for deteriorating products. In addition, a comparison was made between the above conditions and a mode in which the leader's strategy is fully observable to the follower. The approach used in the proposed algorithm to adjust the production rate was also compared with the adjustment based on the partial adjustment model, and the obtained results prove the convergence of the proposed algorithm.

The dynamic trade-off theory of capital structure: evidence from a panel of US industrial companies

PurposeThis paper aims to test the empirical validity of the dynamic trade-off theory in its symmetric and asymmetric versions in explaining the capital structure of a panel of publicly listed US industrial firms over the period from 2013 to 2019. It analyzes the existence of an adjustment of leverage toward its target level and whether the speed of this adjustment is influenced by the debt measure, the model specification or/and the fact that the actual debt ratio is higher or lower than its long-term target level.Design/methodology/approachThis paper uses a quantitative research methodology using panel data analysis under the partial adjustment model and the error correction model using the generalized moment method in first differences and in systems to explore the dynamic nature of firms’ capital structure behavior.FindingsThe results show that the effects of the conventional determinants of leverage are globally consistent with the trade-off theory predictions. The dynamic versions confirm that firms exhibit leverage-targeting behavior. Although this speed of adjustment (SOA) depends on the debt and model specifications, it is around 60% on average. The estimated SOA is higher for the market leverage measure compared to the book leverage. The asymmetric adjustment model reveals that firms are more sensitive to reducing leverage than increasing it when they are away from their target; overleveraged firms exhibit approximately 5% faster adjustment than underleveraged firms when book leverage is used.Originality/valueThe originality of this research paper lies in its development and test of an asymmetric model to allow the leverage adjustment speed to vary depending on whether the firm’s debt ratio is above or below its target level and the methodological approach as well as the different model specifications used and the insights generated through the application of rigorous econometric techniques.

Financing of state-owned entities: Can the Trade-off Theory explain the debt structure?

The purpose of this research is to determine if the financing behaviour of South African state-owned entities (SOEs) have a target capital structure which they adjust towards and if so, the speed of adjustment, a central tenet of the Trade-off Theory. An unbalanced panel data set from a sample of thirty-three commercial SOEs were studied using a dynamic partial adjustment model. The findings provide strong evidence that South African SOEs follow the trade-off theory based on the existence of a target capital structure and speed of adjustment of 21.5% per annum towards the target which is slower than other SOEs in developing economies. The findings also revealed that these SOEs take almost five years to close off two-thirds of the gap between the actual and optimal capital structures. The findings will be of interest to observers of the economy, as they measure the capacity of SOEs to play a leading role in investment and in improving the efficiency of the economy. They could also inform decision making and policy development on SOEs.

ANALYSIS OF THE EFFECT F REVENUE SHARE OF MUDHARABAH AND MUSYARAKAH FINANCING PROCEEDS ON RETURN ON INVESTMENT (ROI) OF AN ISLAMIC BANK: A CASE STUDY

This study aimed to determine the effect of revenue sharing on the results of mudharabah and musyarakah financing on Return On Investment (ROI) at PT. Bukopin Sharia Bank 2011-2020. Islamic banks have two financing principles: profit sharing (mudharabah) and profit-sharing (musharaka). This study uses the Partial Adjustment Model (PAM) research method. The population in this study is Islamic banking which is included in the group of Islamic Commercial Banks. The sample used in this study is Bukopin Sharia Bank and is sourced from data from the Bukopin Sharia Bank's annual financial report data. The data used in this study uses secondary data, namely data obtained indirectly from the source in the form of data on the annual financial statements of Bank Syariah Bukopin taken from the official website www.syariahbukopin.co.id. From the research that has been done, the results show that the mudharabah and musyarakah financing variables have a positive effect on Return On Investment (ROI). Based on the results of this study, it is expected that Islamic banking will further increase mudharabah and musyarakah financing. These two products are the hallmarks of Islamic banks, namely profit sharing, because they can affect the rate of return on investment.