Two-step Generalized Method Of Moments Research Articles

The effect of shariah board characteristics, risk-taking, and maqasid shariah on an Islamic bank’s performance

Shariah supervisory boards are a key feature of shariah governance (SG), providing additional monitoring and oversight. A suitable SG mechanism enhances risk mitigation and improves Islamic bank (IB) performance without violating shariah principles. This study examines the impact of the shariah supervisory board (SSB), maqasid shariah, and risk-taking on Islamic bank performance globally. Quantitative research design with a Dynamic panel regression approach is used with a two-step generalized method of moments (GMM) with data from the Bankscope database for 2014–2018. The findings of this study show that characteristics of SSB and risk-taking have a significant impact on IB performance. This study proves that higher SSB characteristics in terms of size, expertise, level of education, cross-membership and reputation encourage the better performance of Islamic banks. Higher risk-taking illustrates that Islamic banks are more efficient, resulting in better financial performance. Compliance with maqasid sharia indicates that sharia banks comply with Islamic laws so that the resulting performance meets financial aspects and sharia principles. SSB functions as a monitor for Islamic banks so that they operate according to sharia principles, which are reflected in the maqasid sharia elements. Therefore, a higher quality SSB and a higher maqasid shariah index score positively affect the financial performance of IBs.

The effect of political stability, carbon dioxide emission and economic growth on income inequality: evidence from developing, high income and Belt Road initiative countries.

The reduction of income inequality and environmental frailty are important factors which can help achieve sustainable development. In this context, it is important to investigate the nexus between income inequality and carbon dioxide emission by considering the role of political stability. This paper examines the effect of political stability, economic growth, financial development, and carbon dioxide on income inequality in developing countries, high-income countries, and the Belt Road initiative (BRI) countries from 2002 to 2019. By employing a two-step generalized method of moments and panel quantile regression, the findings show that carbon dioxide emission, financial development, and political stability rise income inequality while economic growth significantly reduces income inequality in developing countries. In the case of high-income countries, political stability and carbon dioxide negatively affect income inequality while financial development rise income inequality. In the case of BRI countries, political stability, economic growth, and carbon dioxide emission significantly reduce income inequality. Our findings have considerable policy implications regarding reducing income inequality in the sample countries.

Nexus between being landlocked and living standards in Sub-Saharan African countries: A two-step System GMM analysis

The ultimate objective of the study was to investigate the effects of being landlocked on the living standards in Sub-Saharan African (SSA) countries from 1991 to 2019. Adopting the two-step estimation technique of System GMM (generalized method of moments), the study found that being landlocked has a negative and significant effect on the living standards in SSA countries when using GDP per capita as the living standard measure. Moreover, the historical living standard experiences of SSA countries have a positive and significant influence on the current living standard level. In addition, the population growth rate has a positive and significant effect on the living standards in SSA countries. On the other hand, the official exchange rate, broad money as a percentage of GDP, and inflation have a negative and significant effect on the living standards in SSA countries. Generally, the estimated result reveals the existence of a significant variation in the living standards in landlocked and coastal SSA countries. This study suggests that regional integration between landlocked and transit countries should be improved to minimize entry costs and increase access to global markets for landlocked countries. We argue that this study is of interest to landlocked and coastal countries to increase trade integration and promote the development of both groups, and it will contribute to the scarce empirical evidence.

Determinants of Air Cargo Demand in The European Region

Air cargo demand estimation is crucial for every part of the air industry for determining policies, making decisions on investments, pricing, marketing, etc. This study analyses factors affecting the air cargo demand of the European Region (23 countries) where no studies were found by making use of the two-step generalized method of moments (GMM). The effects of Total Airport Investments, Consumer Price Index, GDP Per Capita, Population, Foreign Trade Volume, Industrial Production Index, and Exchange Rate on Air Cargo Demand were examined with the data set covering the years between 2009 and 2018. The findings indicated that previous air cargo demand has explanatory power on current demand, and there was an inverse relationship between the change in the consumer price index and the amount of cargo. In addition, the panel regression estimator indicates a positive relationship between Foreign Trade and Industrial Production Index. The results show that price stability is of great importance not only from a macroeconomic perspective but micro economically also.

Exploring the relationship between intellectual capital and maqasid sharia-based performance: the moderating role of sharia governance

PurposeThe purpose of this study is to examine the relationship between intellectual capital, sharia governance and Islamic bank performance based on the maqasid sharia index, as well as the moderating effect of sharia governance on the relationship between intellectual capital and maqasid sharia index.Design/methodology/approachDynamic panel regression is used with the two-step generalised method of moments with data from the Bankscope database for 2014–2018.FindingsThe results show that higher intellectual capital efficiency improves Islamic bank performance based on maqasid sharia. Larger board sizes are also found to improve Islamic bank performance. By contrast, higher sharia supervisory board quality and larger independent boards can reduce Islamic bank performance. In the moderating relationship, sharia governance is proven to moderate the relationship between intellectual capital and Islamic bank performance.Research limitations/implicationsThis study used a sample that is restricted to Islamic bank and only used value-added intellectual coefficient to measure intellectual capital. Thirdly, the quality of the sharia supervisory board only involves the presence, size, expertise and doctoral qualification of the sharia supervisory board.Originality/valueThis research: analyses the relationship between intellectual capital, sharia governance and Islamic bank performance in one research framework; uses maqasid sharia index-based Islamic bank performance benchmarks; and examines the moderating effect of sharia governance on the relationship between intellectual capital and maqasid sharia index.

Post-COP26: can energy consumption, resource dependence, and trade openness promote carbon neutrality? Homogeneous and heterogeneous analyses for G20 countries.

The need to halt the pervasive issue of global warming has triggered commitments from policymakers, international organizations, and research pundits with an ambitious goal of neutralizing carbon emissions, forming the core of COP26 in November 2021. Consequently, the carbon neutrality agenda is globally debated in the environment and economic growth literature. Given the preceding narratives, this study examines the tripartite effects of energy consumption, resource dependence, and trade openness on carbon neutrality in G20 economies from 2001 to 2019. The empirical evidence relies on homogenous and heterogeneous dynamic models based on a system generalized method of moments (GMM), fully modified ordinary least squares (FM-OLS), and quantile regression estimators. The following results are evident from the empirical analyses. Among the heterogeneous indicators, nonrenewable energy, oil rents, coal rents, and imports contribute to the surge in carbon emissions, while renewable energy, gas rents, and exports moderate carbon emissions. The homogenous impacts show that total energy consumption, total natural resource rents, and trade openness promote significant carbon emissions. Further, the long-run results from FM-OLS and the disintegrated mean effects from quantile regression are robust for the main short-run results based on the two-step system GMM. Based on the empirical fallout, investing in renewable energy and diversifying from natural resource exploration are among the emanating policy that can enhance the sustainability of the G20 environment.

Relationship between black ownership, capital structure and company performance

Background: The notion that a company’s ownership structure may affect performance and capital structure has been the attraction, but few studies have looked at the effect of black ownership (BO).Aim: This paper contributes to the literature by examining the possible interactions between BO, performance, and capital structure. Within an agency cost framework, the study indicated that the distribution of equity ownership among black shareholders might significantly influence the performance and leverage of companies listed on the Johannesburg Stock Exchange (JSE).Setting: Altogether 187 companies on the JSE were selected for the period of 2007 to 2014.Method: Data on the sampled companies were sourced from the Iress database, a prominent source of financial data in South Africa, as well as annual reports. The research used a pooled fixed-effects model, random effects model and two-step generalised method of moments in the analysis.Results: The findings of the research provided support for the agency cost theory. The empirical findings indicated that BO was negatively correlated with debt ratio (long-term debt) and performance (Tobin’s Q [TQ]). Surprisingly, BO was positively and significantly correlated with return on assets. Finally, the empirical findings indicated that the proportion of long-term debt and total debt based on market value was lower for BO than for total ownership, while TQ was higher for BO than for total ownership. The finding supports the prediction that companies with a relatively small proportion of black ownership cannot support high leverage and high performanceConclusion: Although the introduction of BO by way of government intervention has been partially successful, more can be done to improve the relationship between the proportion of BO, performance and capital structure in a developing economy.

The price elasticity of residential district heating demand: New evidence from a dynamic panel approach

We estimate the price elasticity of residential district heating demand in Denmark using the Blundell–Bond two-step generalized method of moments (GMM) estimator and a sample of 152,913 observations covering the period of 2015 to 2019. Moreover, we analyze the heterogeneity in the response to district heating price increases among various household groups and investigate the distributional consequences of policies that increase the price of district heating. To this end, we measure the effects of a price increase on district heating bills, consumption, and emissions. We find a short-run price elasticity of −0.530 and a long-run price elasticity of −0.638. Higher consumption levels are associated with dwelling age, dwelling size, homeownership, income, number of household members, and whether households receive heating allowances. We find significant evidence that price elasticity varies across household groups: Low-income households, intensive consumers, single households, and households in older and smaller dwellings are more responsive to price changes than their respective counterparts. We also demonstrate that a 10% increase in the price of district heating would increase expenditures in high-income and low-income households by 7.18% and 1.16% (ceteris paribus), respectively. Our findings therefore have important implications for the evaluation of price policies aimed at reducing emissions and the distributional impacts of such measures.

The role of financial development and institutional quality in environmental sustainability: panel data evidence from the BRI countries.

The belt and road countries are mostly emerging and developing countries and heading to attain economic prosperity; however, this development process leads to ecological footprint. The factors of ecological footprint need to be identified and sound level of quality institutions might be helpful to overcome the issue of environmental degradation. Utilizing data from 1985 to 2019 of the belt and road initiative (BRI) countries, this study explores the effect of institutional quality indicators and financial development on carbon dioxide emission by including energy consumption and economic growth to the model. By using OLS, fixed effect, and two-step generalized method of moments, the results indicate that financial development, economic growth, and energy consumption increase carbon dioxide emission and degrade environmental quality. Three out of six institutional quality indicators that include government effectiveness, voice and accountability, and corruption control effect carbon dioxide emission positively, while the other three that include rule of law, regulatory quality, and political stability significantly rise environmental quality. The interaction terms of voice and accountability, government effectiveness, and political stability with financial development also give negative coefficients and reduce emission; however, the interaction of control of corruption with financial development is positive and the interaction of rule of law and regulatory quality with carbon dioxide is insignificant. The findings have considerable policy implication for the sample countries on each individual institutional quality indicator and financial institutions in rising environmental sustainability.

Renewable Energy, Agriculture and CO2 Emissions: Empirical Evidence From the Middle-Income Countries

This study explores the effect of renewable energy and agriculture on CO2 emissions in a sample of 94 middle-income countries for the years 2000–2015. Using two-step generalized method of moments (GMM) regression, we find there is a negative relationship between renewable energy production, agriculture value added and per capita CO2 emissions. If causal, a 1% increase in renewable electricity output leads to a 0.18% decrease in CO2 emissions. Our results remain robust when we include additional control variables. Our study suggests that policy tools such as subsidies or low interest loans can be used to promote renewable energy consumption in middle-income countries.

The effect of digital transformation on firm performance: evidence from Swedish listed companies

PurposeThe objective of this research is to examine empirically the effects of digital maturity (DM) on the firm's financial performance as measured by return on assets (ROA), return on equity (ROE) and Tobin's Q.Design/methodology/approachThe authors use a panel data sample of 92 observations collected from 23 listed firms on Sweden's stock exchange over four years, 2015–2018. The authors hand collect DM from the digital leader's reports and collect financial data from DataStream. Using both static and dynamic panel (generalized method of moments (GMM) estimation) regression models to perform endogeneity problem, the authors explore the impact of the DM index on ROA, ROE and Q of Tobin.FindingsThe results show that DM has a negative effect on ROA and ROE but a positive effect on Q of Tobin. This negative relationship can be explained, by the fact that information technology (IT) investment and the DM could take years to be materialized and to be captured by performance indicators. Company investment in IT will increase and basically the ROA will be negatively affected because the higher value of IT assets is not amortized. Nevertheless, in the long term, company can maximize its performance. The positive effect on Q of Tobin captures the long-run effect of digital transformation.Research limitations/implicationsThis research can be helpful for firms in their process of digital transformation to succeed with the change, create value and to understand the challenges they have to face. In the short term, firms undertaking digital transformation will face some financial difficulties which affect negatively their ROA and ROE, but in the long term they can maximize their performance (captured by Tobin’s Q) and improve their market value.Originality/valueIn previous research, the impact of digital transformation on performance has been measured in terms of revenue growth, profit margins and in terms of earnings before interest and taxes (EBIT). Even if the authors have sufficient evidence of the positive effect of digital transformation on organizational performance, there is no support of the positive effect on financial performance. So, the authors try to fill this gap. This research has also the merit of examining this relationship empirically through a dynamic panel data estimation two-step system GMM, while the majority of previous studies are qualitative in nature based on interviews and questionnaires or simple correlations.

Natural disasters and foreign exchange reserves: The role of renewable energy and human capital

The occurrence of natural disasters is as old as the history of human beings, thus, the SDG 11.5 target underscores the importance of reducing natural disasters and their corresponding losses. Natural disasters suddenly disturb the inflow of foreign reserves and restrict the purchase of necessary goods, thus, causing welfare loss. Due to limited literature, this research shows the effect of natural disasters on foreign exchange reserves in 24 high, 26 upper-middle, 32 lower-middle, and 16 low-income countries. The two-step generalized method of moments shows that disaster-related loss reduced the level of foreign reserves in all panels, excluding high-income countries. The favorable impact of infrastructure, capital formation, renewable energy, FDI inflow on foreign reserves implies practical implications like (a) infrastructural investment is recommended to strengthen the economy, (b) capital formation is recommended for the production of exportable items, (c) enhance human capital through healthcare, education, employment, training, and skills development, (d) installation of renewable energy systems at discounted rates to tackle energy crisis and reduce import bills, and (e) increase FDI inflow, especially in disaster management and planning. Resilience-building is a vital tool for hazard management and planning. This study encourages countries to follow the Sendai Framework 2015–2030 to increase resilience.

Impact of ICT diffusion on the interaction of growth and its volatility: Evidence from cross-country analysis

There is a large body of research investigating the impact of information and communication technologies (ICT) on economic growth; however, the empirical evidence on growth and its volatility simultaneously driven by ICT diffusion has still remained scarce so far. To fill this void, system two-step generalized method of moments (S-GMM) estimator and a new proxy capturing the product of growth and its fluctuation is employed to determine the nexus between ICT penetration and the interaction of growth and its volatility. Using a comprehensive panel of 122 economies covering the period 2000–2019, we find that all proxies for the ICT revolution show positive impacts on the product of growth and its volatility. This means that an increase in ICT diffusion could lead to both higher growth and lower growth volatility. To offer robust and consistent results, ICT growth and its volatility nexus are confirmed through several econometric techniques such as panel quantile regression, the control of fixed effects, alternative measure for the interaction between growth and its fluctuation, and across countries with different national incomes. The research could give rise to use of this proxy for the product of growth and its volatility with inverse hyperbolic sine transformation in the empirically econometric model for the future studies.

Effects of Corruption Control on the Number of Undernourished People in Developing Countries.

Developing countries will be home to 85% of the world’s population by 2030. Hence, it is important to ensure food security for them. This effort is not easy, as the number of undernourished people (NUP) in the world has increased. We investigated the impact of food and non-production factors on the NUP in developing countries. This study employed secondary data from 57 developing countries between 2002 and 2018. These countries come from three regions, namely Africa, Asia, and Latin America and the Caribbean. One-step and two-step generalized method of moments (sys-GMM) models were used to analyze the data. The findings showed that the food production index, cereal import dependency ratio, economic globalization index, and human capital index had different effects on the NUP in each region. The excellent news is that corruption control can help developing countries minimize their NUP. Based on the findings, we propose efforts to improve physical and economical food access and control corruption, and developing country governments and the international community must demonstrate a strong commitment to reducing the prevalence of undernourishment.

Finite-sample corrected inference for two-step GMM in time series

This paper develops a finite-sample corrected inference for the efficient generalized method of moments (GMM) in time series. To capture a higher-order uncertainty embodied in estimating the time series GMM weight matrix, we extend the finite-sample corrected variance formula of Windmeijer (2005) to heteroskedasticity autocorrelated robust (HAR) inference. Using fixed-smoothing asymptotics, we show that our finite-sample corrected test statistics lead to standard asymptotic t or F critical values and suffer from less over-rejection of the null hypothesis than existing GMM procedures on finite-samples, including continuously updating GMM. Not only does our finite-sample corrected variance formula correct for the bias arising from the plugged-in long-run variance estimation, but it is also not exposed to a potential side effect of Windmeijer’s formula, which can introduce an additional source of over-rejection after the correction.

The Impact of Natural Disasters and Climate Change on Agriculture: An Empirical Analysis

This study shows the effect of natural disasters, rainfall, temperature, economic growth, renewable energy, and contributing family workers on the agricultural development index in 101 countries of all income groups (i.e., 24 high, 29 upper-middle, 32 lower-middle, and 16 low). It develops a new agricultural development index using a standard procedure. The two-step generalized method of moments depicts revealed the adverse consequences of natural disasters on agriculture. Renewable energy showed a favorable impact on agricultural development in all panels. Contrarily, the reduction in agricultural development was reported due to an increase in temperature in all panels. Agricultural development increased due to economic growth in all panels. It is required to increase disaster resilience to minimize disaster-related losses. It is recommended to increase renewable energy use for agricultural development. Policymakers should make strategies to mitigate the adverse impacts of global warming.

The role of economic freedom and clean energy in environmental sustainability: implication for the G-20 economies

With the increasing challenge of attaining sustainable balance in socioeconomic-ecosystem activities, the aspects of the global goals are continously being harnesed in order to ensure a sustainable interaction. As an alliance of the United Nations, the G-20 member countries have not only committed to attaining the Sustainable Development Goals 2030, the alliance body has further fostered frameworks that are targeted at advancing global economic and environmental sustainability. Within this context, the current study examined the environmental sustainability effects arising from the economic freedom prowess in the panel of the G-20 economies over the period 2000–2016. Among the sparse studies, the study employed the indices of economic freedom: freedom to trade internationally, regulation, sound money, legal framework, and property right and alongside the real income and renewable energy consumption as explanatory indicators. With the result of the difference- and two-step system GMM (generalized method of moments), the legal system and property right, sound money, freedom to international trade, and regulatory efficiency are detrimental to the panel countries’ environmental quality. Although this is likely to be untrue for countries that have advanced their climate actions and especially the Sustainable Development Goals (SDGs) 2030, it suggests a dearth in the SDGs achievement among the developing and emerging economies. Moreover, it probably shows the depth of traditional or business-as-usual practices (such as the lack of sustainable economic and environmental practices) and the socioeconomic system that are obtainable in most of the developing and emerging economies. Thus, the study put forward tangible policies that are essential for governance and toward attaining desirable country-specific SDGs.

Working capital management, board structure and Tobin's q ratio of Thai listed firms

PurposeThis study investigates whether the integration between working capital management (WCM) and the structure of a firm's board of directors impacts its Tobin's q ratio. The sample set consists of 319 Thai listed firms with 3,190 firm-year observations from 2010 to 2019.Design/methodology/approachThe two-step generalized method of moments (two-step GMM) model is employed to address endogeneity.FindingsThe empirical results show that having both (1) a high level of net working capital holdings, a long period of net trade cycles or using an aggressive policy in working capital investment and (2) a more diverse board of directors decrease a firm's Tobin's q ratio. Conversely, when a firm's managers employ an aggressive policy for their working capital financing and the board structure of their firms is highly diverse, the firm's Tobin's q ratio increases. This indicates the appropriateness of some WCM policies is dependent on the characteristics of a firm's board of directors. Thus, the different integration between WCM and board structure may elicit dissimilar outcomes for a firm's Tobin's q ratio.Originality/valueTo their knowledge, the authors are the first to investigate the influence of the integration between WCM and board characteristics on Tobin's q ratio.

Internal Corporate Governance and Bank Risk Taking Behavior: Evidence from Developed and Emerging Economies

The study aims to evaluate the impact of board structure and ownership structure on bank risk taking behavior in developed and emerging countries. To fulfill this objective, the study used annual data of 100 large commercial banks for the period 2006-2017 from twelve countries. Zscore is used as the main proxy of bank risk taking behavior. Internal corporate governance is measured by board size, board independence, CEO power, gender diversity, state ownership and foreign ownership. The study controls the issues of endogeneity by applying a two-step generalized method of moments (GMM) econometric approach. The main findings of the study indicate that banks having a greater board size, a higher portion of independent non-executive directors, and a powerful CEO with chair role duality results in reducing the risk of bankruptcy that helps in achieving greater levels of financial stability in the banking sector. However, banks with increased female directors, higher portion of foreign and state ownership escalates the probability of insolvency risk.

Renewable Energy and CO2 Emissions: Empirical Evidence from Major Energy-Consuming Countries

The goal of this study was to contribute to the ongoing debate on the relationship between renewable energy (RE) and CO2 emissions. In particular, we explored the link between RE and CO2 emissions in a sample of major renewable energy-consuming countries for the period 2000–2015. Therefore, the major contribution of this study was to answer the question of whether a substantial shift to renewable energy consumption will lead to lower CO2 emissions. Using the two-step generalized method of moments (GMM) estimator, our empirical results suggested that RE has a significant negative effect on CO2 emissions. For example, a one percentage point increase in RE leads to a 0.5% decrease in CO2 emissions.