Simultaneous Equations Approach Research Articles

Energy taxes and economic growth in OECD countries: a simultaneous equations approach

ABSTRACT This paper explores the channels through which energy taxes may affect economic growth, using a simultaneous equations model for a balanced panel data of 31 OECD countries over the 1994–2013 period. The empirical results reveal a negative impact of energy taxes on physical investment in the short and long term. This impact is negatively sensitive to the existence and level of public debt. Additionally, the results show that energy taxes have an indirect effect on human capital through their impact on polluting emissions. The taxes on energy products are able to reduce both the flux and the stock of polluting emissions that have a negative impact on human capital skills in the short and long term. Finally, we found that energy taxes could encourage eco-innovation in the short and long term.

Pay-performance sensitivity and corporate governance mechanisms: evidence from Tunisia

PurposeThe purpose of this study is to analyze the CEO compensation sensitivity to firm performance, termed as the pay-for-performance sensitivity (PPS) in the Tunisian context and to test the robustness of this relationship when corporate governance (CG) mechanisms are considered.Design/methodology/approachThe consideration of past executive pay as one of the explanatory variables makes this estimation model a dynamic one. Furthermore, to avoid the problem of endogeneity, this study uses the system-GMM estimator developed by Blundell and Bond (1998). For robustness check, this study aims to use a simultaneous equation approach (three-stage least squares [3SLS]) to estimate the link between performance and CEO pay with a set of CG mechanisms to control for possible simultaneous interdependencies.FindingsUsing a sample of 336 firm-years from Tunisia over the 2009–2015 periods, this study finds strong evidence that the pay-performance relationship is insignificant and negative, and it becomes more negative or remains insignificant after introducing CG mechanisms consistently with the managerial power approach. The findings are robust to the use of alternative performance measures. This study provides new empirical evidence that CEOs of Tunisian firms abuse extracting rents independently of firm performance.Originality/valueThis study contributes to the unexamined research on PPS in a frontier market. This study also shows the ineffectiveness of the Tunisian CG structure and thus recommends for the legislator to impose a mandatory CG guide.

Demand and supply of shallot in North Sumatera Province

Shallots have a fluctuating demand therefore this is not balanced by a continuous supply. The purpose of this study was to see what factors influence the demand and supply of shallots in north Sumatera province. The method of analysis used is a simultaneous equation approach using data from 1989-2018 and processed with the help of software programs. 10. The results show that the price shallots, population together had a significant effect on the demand of shallots in north Sumatera province. The price of shallots, harvested area and fertilizer prices together had effect on the supply of shallots north Sumatera. Per capita income and fertilizer prices together have effect on the price of shallots in north Sumatera province.

Welfare regime patterns in the social class-fertility relationship: Second births in Austria, France, Norway, and the United Kingdom

This paper develops a theoretical framework to analyze the relationship between social class and fertility. The framework borrows elements from social class analysis, institutional perspectives on the labor market and fertility, and welfare and gender regime theories. I hypothesize that individuals’ social class positions impinge on their economic security, employment–parenthood role compatibility, and gender relations, which are key variables in the explanation of fertility in contemporary postindustrial societies. Different combinations of these variables for each social class and country lead to class-specific fertility patterns. I use Austrian, French, Norwegian, and British samples from the European Union Statistics on Income and Living Conditions, for the years 2004–2015, and discrete-time event–history analysis techniques to analyze second birth probabilities. A simultaneous equations approach is adopted to account for unobserved heterogeneity. The results document substantial differentials between social classes and distinct social class patterns for each country, consistently with the theoretical expectations. In Norway and France, overall high levels of second birth probabilities are found that follow a positive social ordering. In the United Kingdom and Austria, a U-shaped relationship between class and second birth probabilities prevails. Once unobserved heterogeneity is accounted for in the analyses, social class shows a positive effect on fertility in the four countries. The results show that social class is not only key to understanding intracountry differentials in fertility but is also useful for understanding the functioning of the welfare regime and its relationship to overall levels of fertility.

The impact of board characteristics and CEO power on banks’ risk-taking: stable versus crisis periods

We examine the impact of board structure, CEO power and other bank-specific factors on bank risk-taking for a sample of 72 publicly listed European banks in both stable and crisis periods. Using a simultaneous equations approach, our main findings indicate that the proportion of independent directors, the board size, and Chief Executive Officer (CEO) power affected bank risk-taking negatively during the recent financial crisis. On the contrary, institutional shareholder ownership and the presence of an ex-CEO as Chairman influenced bank risk-taking positively. Additionally, we separately analyse stable and crisis periods and observe that in the pre-crisis period only board independence and institutional ownership keep the same impact on risk while CEO power has no influence and the existence of an ex-CEO as Chairman reduces risk-taking by banks. We conclude that different governance characteristics have different relevance for banks' risk-taking contingent on the economic environment being one of stability or crisis.

Stress and Retirement

This paper investigates the bi-directional causal relationship between retirement and stress. We use PSID data for the period 2007-2015. Using a simultaneous equations approach, we find that a rise in stress increases the probability to retire by roughly 15.4 percentage points, while retirement decreases stress by 34.5 percentage points. We find the same results when we disaggregate by individuals’ characteristics, but the former effect is stronger for males, for people working in typical blue-collar jobs, and for people whose wealth is below the mean; while the latter is stronger for males, for white-collar workers, for people whose wealth is above the mean, and for white individuals. We show that official retirement ages are a strong instrument for actual retirement age, and that lagged physical activity levels are a non-linear instrument for perceived stress. We also confirm that objective measures of mental health are a strong instrument for perceived stress.

Corporate environmental performance and financing constraints: An empirical study in the Chinese context

AbstractBetween 2006 and 2017, 2,965 Chinese firms listed on the Shanghai/Shenzhen Stock Exchange have been studied to investigate whether better corporate environmental performance (CEP) leads to better access to capital and mitigates firms' financing constraints. It is hypothesized that better access to finance can be attributed to the increased government support due to enhanced firm political legitimacy and market legitimacy. Event studies find that the firms with better CEP suffer significantly lower finance constraints, and the evidence from the studies proves that firms' political legitimacy and market legitimacy are important in mitigating finance constraints. The results of the studies are confirmed by using two alternative measures of capital constraints and CEP, an instrumental variable approach, and a simultaneous equations approach.

Sources of economic slowdown: A simultaneous equations approach

AbstractWe explore the potential sources of slowdown in growth in a theoretical macroeconomic framework, from which we develop an empirical model consisting of a system of equations for the growth rate of GDP and the consumption share of GDP. Having estimated the basic model, we perform an extreme bounds analysis with a range of control variables as a robustness check on the results. In a sample of middle‐income countries, an increase in the consumption ratio appears to be negatively associated with economic growth; foreign direct investment is found to be significantly associated with both economic growth and the consumption ratio. On considering sub‐samples of Asian and Latin American countries, we find, in the Asian economies, that there is an inverted U‐shaped relationship between the consumption ratio and economic growth while, in the Latin American economies, there is an inverted U‐shaped relationship between the consumption ratio and growth but a U‐shaped relationship between the government spending ratio and economic growth. In both sub‐samples, the investment ratio is positively associated with growth.

The impact of trade on energy efficiency in the global value chain: A simultaneous equation approach

Fostering energy efficiency is one of the most effective ways to sustain economic growth while addressing climate change and limiting emissions. On the other hand, the pattern of international trade has changed many folds. The present study quantified the value-added trade (VAT) and developed a simultaneous equation model to empirically analyze the impact of value-added trade on energy efficiency in the global value chains (GVC). The Super-SBM model is used to estimate energy-efficiency. Empirical results indicate that India, Brazil, USA, Poland, France, Turkey, Israel, Italy are super-energy efficient, as their efficiency score is greater than 1. Secondly, value-added trade significantly improves energy efficiency by 0.434 after controlled the time and country effects. In addition, trade is divided into value-added exports and value-added imports to describe the internal trade mechanism, which depicts that the magnitude of the energy efficiency effect of value-added exports (0.011) is greater than that of imports (0.009). The findings also suggest that investment in R&D, foreign investment, and human education significantly improves energy efficiency. Foreign direct investment (FDI) positively increases the energy efficiency after controlled the unobserved fixed effects of country and year. It reflects the importance of the technology diffusion on increasing energy efficiency through FDI. Additionally, political regimes have also major impacts on both energy efficiency and value-added trade.

Developing national and regional individual tree biomass models and analyzing impact of climatic factors on biomass estimation for poplar plantations in China

National and regional climate-sensitive biomass equations were developed for poplar plantations in China, with mean annual temperature and precipitation significantly affecting predicted biomass. In the context of global climate change, information on forest biomass becomes more and more important, and the impact of climate change on biomass estimation is also receiving increasing attention. Using the dummy variable modeling approach and the error-in-variable simultaneous equations approach, national and regional one- and two-variable individual tree biomass models were developed for poplar plantations in China. The models were based on above- and below-ground biomass data of 450 and 147 destructive sample trees, respectively, collected from poplar plantations in 15 provinces of three regions in China. In addition, combined with climate data of mean annual temperature (T) and mean annual precipitation (P), climate-sensitive individual tree biomass models were established, and the impact of climatic factors on biomass estimation was analyzed. The coefficients of determination of national above- and below-ground biomass models developed in this study were more than 0.90 and 0.82, whereas the mean prediction errors were less than 5% and 10%, respectively. For climate-sensitive biomass models, aboveground biomass was only impacted by T, while belowground biomass was affected by both T and P, and impact of the latter was greater than that of the former. Considering the comprehensive effect of climatic factors to above- and belowground estimation, the total biomass estimates of poplar trees with the same size would reach the maximum in the regions for T = 17 °C and P = 1200 mm, which might provide reference for the scientific management of poplar plantations in China.

The role of public lands in local economies of the US Lake States: A spatial simultaneous equation approach

Public lands in the United States are managed to conserve environmental resources. Serving as regional natural, historic, and/or cultural amenity endowments, these lands produce recreational opportunities for residents and exist as important regional attractants for visitors and residents thus serving as important stimuli for local retail and service sector firms. In this study, we examined associations between the presence of 13 different types of public lands with population and employment growth using a spatial simultaneous equations model for data covering 6,019 MCDs in the US Lake States region of Minnesota, Wisconsin, and Michigan. Results suggest that certain types of public lands were important determinants of local economic growth although these effects varied by time period. Among the thirteen types of public lands, national parks, national wildlife refuges, national recreation areas, state parks, and local parks were significant explanatory elements behind local economic growth. However, such public lands have differing and mixed effects on population and employment growth rates between the time periods 1990−2000 and 2000−2010.

The determinants of waste generation and recycling performance across the Portuguese municipalities – A simultaneous equation approach

Waste management and recycling are fundamental issues for policy makers to protect the environment. Although these topics have been broadly studied at country-level, studies addressing sub-national units are still limited. This research aims to contribute to this field by analyzing the waste generation and recycling processes across the Portuguese municipalities during the period 2009–2018. The paper assesses the decoupling hypothesis consistent with the environmental Kuznets curve, advocating that a threshold of development is reached and, afterwards, environmental degradation declines through less waste production and higher recycling rates. To address this hypothesis the waste generation and recycling equations are estimated using as fundamentals the total production activity and by sector, the population age structure, and population density as proxy for the degree of urbanization. This study also assesses whether the development dichotomy between more and less developed municipalities affects waste and recycling performances, and to what extent the fiscal consolidation period (2011–2014) influenced these processes. Empirical evidence validates the inverted U-shaped relationship between municipal waste generation and overall production per head, the U-shaped relationship between recycling and waste generation, as well as between recycling and the share of the tertiary sector. The municipal production structure is shown to be important for explaining waste generation and recycling behavior, in contrast to population age structure that only differentiates recycling performance. It is also shown that the fiscal consolidation period affected positively the waste and recycling processes, while population density and the development dichotomy are not relevant factors for explaining differences in waste generation and recycling activities across the Portuguese municipalities.

Institutional shareholding and corporate social responsibility reporting: evidence from Bangladesh

PurposeThis study aims to examine the influence of institutional shareholding on a firm’s corporate social responsibility (CSR) practices in Bangladesh.Design/methodology/approachThis study uses a content analysis to capture a firm’s CSR practices, based on various attributes of social and environmental reporting made by the firm. Based on these attributes, a corporate social responsibility reporting index (CSRI) is constructed. To examine the causal relationship between institutional shareholding and firm CSR practices, this study uses a simultaneous equations approach to control the endogeneity problem.FindingsThe finding of this study is that both CSR reporting and institutional shareholding negatively influence each other.Research limitations/implicationsThis study is subject to some limitations such as the subjectivity or judgement associated in the coding process.Practical implicationsIf the institutional investors are not concerned with its environmental and societal issues, there will be a sustainability issue for the business because companies will continue ignoring the employee health and hygiene, education, training and welfare. Their ignorance of these societal issues will lead to compromising the quality of living for important stakeholders within the society.Originality/valueThis study contributes the literature on CSR reporting.

Neighbourhood built Environment, physical activity, and physical health among older adults in Singapore: A simultaneous equations approach

IntroductionAn increasing body of evidence suggests that regular physical activity can have important beneficial effects on individuals’ health into later years. This research investigated the inter-relationships between neighbourhood built environment, physical activity and three physical health outcomes among older adults in Singapore. MethodsDrawing on 2018 data from 810 community-dwelling older adults in Singapore, a simultaneous equation approach was utilised to disentangle the complex interactions among built environment (both objective and self-reported measurements), physical activity and physical health (i.e., body mass index, functional capability and presence or absence of ‘three high’ chronic diseases) while controlling for other confounding factors, including socio-demographics and health behaviour. ResultsThe accessibility to destinations (e.g., parks, open spaces, playgrounds) and other walkability features (e.g., neighbourhood safety, covered footpath) could promote transportation or recreational outdoor physical activity and therefore, health among older residents in Singapore. Interestingly, built environment characteristics related differently to physical activity undertaken for transportation and recreational purposes. There was a bi-directional relationship between an older adult's functional status and transport-related physical activity. There was also evidence that the connection between number of chronic diseases and recreational physical activity was reciprocal. ConclusionInsights into the built environment-physical activity-physical health relationships highlight the importance of supportive built environment in the process of health enhancement for older people.

The Main Cause of Exchange Rate Increasing (US Dollar) in Iran

This paper determine the main cause of exchange rate increasing (U.S. Dollar) in Iran. The price of one dollar rose by about 17414% and 24566% in official and non-official market last three decades. We use systems of simultaneous equations (SSE) approach to test the hypotheses of the monetary approach of exchange rate (MAER) with the budget deficit financing equation, to discern how financing budget deficits increase exchange rate. The sample of data has been since 1978 to 2012. Results of estimation confirm the MAER theory. And, led us to conclusion that sustained budget deficit caused by government is the crucial factor in increasing nominal exchange rate.

Nexus between trade, CO2 emissions, renewable energy, and health expenditure in Pakistan.

As a result of the recent energy crisis and rapid industrialization in Pakistan, significant attention has turned toward alternative energy resources, CO2 emissions, and health-related issues. The adoption of renewable energies will not only accomplish the energy demand in the economy but will also provide a healthy environment. Therefore, it is essential to understand the linkages between trade, renewable energy, CO2 emissions, and health expenditures with a special focus on an emerging economy like Pakistan. This study used time series data from the 1998-2017 period and adopted the simultaneous equation approach for empirical analysis. The results show that an increase in trade volume positively contributes to the amount of CO2 emissions and, as a result, CO2 increases health expenditures. Conversely, renewable energy has a negative association with health expenditures and CO2 emission, signifying the importance of renewable energy in enhancing environmental quality and reducing health expenditures, which are adversely affected due to CO2 emissions. The empirical findings suggest that the government of Pakistan needs proper policy guidelines for renewable energy adoption in the industrial sector and that such guidelines can be further accommodated and adjusted in other determinants of the economy.

Financial report readability and audit fees: a simultaneous equation approach

PurposeThis paper aims to investigate whether audit fees and financial report readability are bi-directionally related.Design/methodology/approachThe authors test their hypotheses with empirical data. Specifically, they adopt a two-stage simultaneous equation regression model to assess the bi-directional relationship between audit fees and financial report readability.FindingsWhile poor readability increases the fees charged by the auditor, higher audit fees improve the readability of the financial reports.Research limitations/implicationsThis study is based on US data. Future research may extend this study to other countries.Practical implicationsPoor financial report readability encumbers stakeholders of the firms. Understanding the interaction between financial report readability and audit fees will help both auditors and firm managers.Social implicationsAudit committees aggressively negotiating for lower audit fees should be aware of the link of low audit fees, potentially indicative of poor quality, to less readable reports. Investors and regulators too should be concerned about this relationship, especially in instances when auditors low-ball audit fees or when firms aggressively negotiate for lower audit fees.Originality/valueTo the best of authors’ knowledge, this study is the first to document the bi-directional relationship between financial report readability and audit fees and assess the positive impact of audit fees on financial report readability.

The impact of UEFA financial fair play on player expenditures, sporting success and financial performance: evidence from the Italian top league

ABSTRACT Research question: In this study we empirically test the following hypotheses regarding the impact of financial fair play (FFP) on Italian first-division clubs: 1) FFP works as a governance mechanism moderating the relation between internal governance mechanisms and wage expenditures, 2) FFP is altering the relative importance of player expenditures as drivers of sporting performance, and 3) FFP is shifting the business model of Italian clubs leading to a more efficient decision-making on player transfers. Research methods: Using 165 club-year observations from 2007 to 2017, we jointly model the determinants of wage expenditures, sporting results and financial performance via a simultaneous equation approach. The impact of FFP is estimated by interacting a dummy variable for FFP with the key explanatory variables of each model. Results and findings: Empirical results show that FFP has 1) a negative effect on the relation between wages and sporting results, 2) a positive effect on the relation between net transfer fees and sporting results, and 3) a positive effect on the relation between gains on player trading and financial performance. Implications: Overall results suggest that FFP is altering the business model of Italian clubs from an investment-focused (wage spending) to a more efficiency-driven one that is geared to make gains from player trading. Accordingly, club managers should commit to creating sustainable cycles of player transfers in order to thrive under the new regulatory environment. As for regulators, this study supports the notion that FFP restores efficient managerial incentives in football businesses, reinforcing the case for a full implementation of the regulation.

On the nexus between innovation, productivity and migration of US university graduates

ABSTRACTThis paper studies the link between the migration of US university graduates, innovation and productivity. Using migration flows extracted from the SESTAT database and following a simultaneous equation approach, it finds that there is a positive and statistically significant relationship between the migration flows of skilled economic agents and innovation (and productivity). Higher taxation and housing prices act as a decelerating force to migration. The role of science, technology, engineering and mathematics (STEM) graduates, potential investors and entrepreneurial education appear to play a salient role in regional innovation. The results are robust to various implementations, including the use of the instrumental variables approach.

The nexus between credit risk and liquidity risk and their impact on banks financial performance: Evidence from Pakistan

Risk management became an important dilemma in the banking literature and has gained consideration since the financial crisis of 2007-08 which brought numerous challenges for most organizations. More than 325 banks’ failure were reported in the United States during the worldwide financial crisis. The high number of banks failures needs to evaluate the risk management efficiency of banking institutions of Pakistan. In this study, we used the PVAR model and Simultaneous equation approach to examine the link between Liquidity Risk and Credit Risk and its influence on banks’ performance working in Pakistan. The panel data was collected from 33 banking institutions between the period 2008 - 2018. The results revealed that Credit Risk and Liquidity Risk are not interrelated with each other. However, the two risks independently influence the banks’ performance and their relative interaction plays a major role in the instability of the banking sector. The finding forms the foundation for recent regulatory exertions to better understand the two types of risks and to strengthen the joint management of both Liquidity Risk and Credit Risk.