Two-way Fixed Effects Model Research Articles

Influence of top management team faultlines on corporate digitalization

PurposeThis study aims to explore whether top management team (TMT) faultlines affect corporate digitalization and what the impact mechanism is, thus effectively promoting the digital transformation of enterprises from the perspective of optimizing TMT structure.Design/methodology/approachThis study sampled companies that were listed in China between 2011 and 2020. Using the two-way fixed effect model, it empirically tests the impact of TMT faultlines on the digital transformation of enterprises.FindingsTMT task-related faultline significantly positively impacts enterprise digital transformation, while the bio-demographic faultline has a significant negative effect. The regulatory role played by Chief Executive Officer (CEO) power intensity in the relationship between the bio-demographic faultline and digital transformation is a negative one. The above relationship is strongly influenced by industry technical sophistication, corporate location and listing board.Research limitations/implicationsThe research has promoted the development of the upper echelons theory in the context of digitalization. Moreover, it enlightens the research of digital transformation’s influencing factors and mechanisms. However, no suitable mediating variable was found.Practical implicationsThis research has significant implications for managers to optimize the internal structure of the TMT according to different enterprises’ business strategies in order to establish an efficient management team.Originality/valueThis study provides a new theoretical framework for TMT’s role in enterprise digital transformation. Further, it makes a beneficial exploration of the boundary and situational conditions of their relationship.

The relationship between total factor productivity and environmental quality: A sustainable future with innovation input

Environmental quality has become an important issue around the world and has received much public attention in China. China is currently experiencing a rapid improvement in industrialization and urbanization. However, irrational resource exploitation and excessive energy consumption in the development track of the economy have contributed to the severe environmental quality crisis in China. Consequently, this study is devoted to exploring the association between economic development measured by total factor productivity (TFP) and environmental quality identified by SO2 emissions and PM2.5 concentrations in peripheral cities of China between 2004 and 2018. Using a two-way fixed effects model, we find a negative effect of TFP on environmental quality. Specifically, every 10 % increase in TFP significantly reduces SO2 emissions by 0.844 % and PM2.5 concentrations by 0.121 %. We also conclude that innovation input measured by science and technology expenditure plays a mediating role between environmental quality and TFP. Meanwhile, the impact of TFP on the mitigation of environmental problems varies significantly with regard to different regions, TFP scales, and industrial structures. Overall, our findings provide comprehensive insights into prefectural-level TFP and innovation input on environmental quality initiatives.

Re‐examining the impact of global foreign direct investment (FDI) inflows on haze pollution—considering the moderating mechanism of environmental regulation

One important and frequently raised issue about foreign direct investment (FDI) is its potentially environmental consequences. In recent years, as severe haze pollution has broken out worldwide, whether FDI inflows increase PM2.5 spillages in a country has sparked a new round of heated discussion. This study attempts to empirically investigate how FDI affects haze pollution in various countries, by employing a cross-country panel dataset during the period 2010–2017, and further to examine the interactive effect of environmental regulation and FDI in the FDI–pollution nexus. Based on a two-way fixed-effects model with robust standard errors, the estimation results show that FDI inflows significantly lead to an increase in PM2.5 exposure, therefore, confirming the validity of the Pollution Haven Hypothesis. Moreover, environmental regulation generally appears to be ineffective in directly reducing haze pollution but acts as an essential underlying mechanism in the relationship between FDI and haze pollution. Under the moderation of environmental regulation, the positive marginal effect of FDI on PM2.5 continues to decrease until it becomes negative. The findings suggest that countries, especially developing countries and emerging economies should consider a mix of policies to manage its inward FDI to achieve sustainable development in the post-financial crisis era.

A Study of the Impact of Population Aging on Fiscal Sustainability in China

China has entered a deeply aging society, and the aging population poses a significant public risk to fiscal sustainability. In this regard, researchers have conducted a large number of studies, but the fiscal sustainability indicators used in the existing literature are not scientific enough, the sample data are too macro, and the heterogeneity analysis is not comprehensive enough. This paper innovatively constructs fiscal sustainability indicators based on data from 4 municipalities directly under the central government, 8 provincial capitals, and 88 prefecture-level cities in China from 2010–2019, and analyzes the impact of population aging on fiscal sustainability in eastern, central, western, and multi-level cities in China, using methods such as two-way fixed-effects models. The study finds that (1) fiscal sustainability is significantly hampered by population aging; that is, the more aging there is, the less fiscal sustainability there is. (2) The inhibitory effect of population aging on fiscal sustainability is greater in developed regions compared to backward regions. Compared to prefecture-level cities, provincial cities (including municipalities and provincial capitals) are much more negatively impacted by population aging on fiscal sustainability. (3) The paths through which population aging inhibits fiscal sustainability are healthcare expenditures and social security employment expenditures. The policy recommendations put forward in this paper are to raise the fertility rate, protect the fiscal expenditures of developed regions and provincial capitals to deal with population aging, and increase the effectiveness of the use of funds for medical and health expenditures and social security employment expenditures. The conclusions and policy recommendations drawn in this paper have a positive effect on China’s response to the fiscal sustainability problems caused by an aging population.

(UN-)Protected Elections – Left for Good? Withdrawal of United Nations Peacekeeping Operations and Its Effects on Violence During Electoral Periods in War-Affected Countries

ABSTRACT How does the phased withdrawal of United Nations peacekeeping operations (PKOs) influence electoral violence? Many PKOs recently ended and peacekeeping personnel numbers are decreasing. Yet, research on peacekeepers’ exit remains in its infancy. We help fill this lacuna and examine how peacekeepers’ withdrawal affects violence during electoral periods. We focus on electoral periods because elections are both often-desired intervention endpoints and violence-prone moments in post-war trajectories. We argue that electoral violence increases shortly after a reduction in PKO troops because shortfalls in external oversight and security assistance reduce costs for organizing violence and open opportunities for pursuing a coercive electoral strategy. However, violence-inducing exit effects are likely short-lived due to adaptation by domestic security forces or peacekeepers who remain in the host country. We examine our argument across electoral periods and first-order administrative units of all African countries hosting a PKO (2001–2017). Controlling for violence trends prior to peacekeepers’ exit, two-way fixed effects models suggest that a local reduction in PKO troops is not associated with subsequent increases in electoral violence. However, withdrawal incidents lead to spikes in political violence more broadly defined. Our results confirm worries that downsizing during election times may endanger security gains in post-war countries.

Digital Economy and the Sustainable Development of China’s Manufacturing Industry: From the Perspective of Industry Performance and Green Development

Digital transformation is increasingly crucial to the upgrading and sustainable development of China’s manufacturing industry with the rapid development of the digital economy. To study the impact of the digital economy on the sustainable development of the manufacturing industry, this study analyzed the theoretical basis of the digital economy’s impact on the promotion of the sustainable development of the manufacturing industry. Then, based on the panel data of manufacturing sectors in 2002, 2005, 2007, 2010, 2012, 2015, and 2017, empirical tests and mechanism analysis were conducted by means of the two-way fixed effect model and the mediating effect model. The results were as follows: (1) Digital services can significantly improve the industrial performance of the manufacturing industry, while the effect of digital products is nonsignificant; (2) Mechanism analysis revealed that digital services can promote the industrial performance of the manufacturing industry through the intermediary mechanisms of reducing production costs rather than transaction costs; (3) Digital services can also reduce carbon emissions and promote the green development of the manufacturing industry through the intermediary mechanisms of innovation. In conclusion, digital services can promote the sustainable development of China’s manufacturing industry. This paper provides evidence for the integration of the manufacturing industry and the digital economy. Furthermore, it has important implications for the formulation of digital economy policies and the sustainable development of the manufacturing industry.

Building an Efficient Model by Using Panel Data

The panel data models have gained great attention because they consider the effect of changing time series and the cross-sectional units. It has a higher number of degrees of freedom and is, therefore, more efficient. Our research aims to build the most efficient model using panel data through comparison among six statistical models and to determine the most efficient model through the mean squares of error (RMSE) and the coefficient of determination (R2). Using the EViews-12 package to apply to two data sets to determine the most efficient model. The more critical findings are that the hypothesis assumed by the research states that the accuracy of the adopted models varies. Furthermore, it was found by building six types of panel data models that the best model is the (Two-way Fixed Effect Model) because it achieves the lowest value of (RMSE) and the largest value of R2.

The effects of new energy vehicle subsidies on air quality: Evidence from China

Automobile exhaust emissions cause detrimental effect to human health by polluting air. The promotion of new energy vehicles (NEVs) to reduce vehicle exhaust emissions for human health has become an important tool to fight against air pollution. This paper examines the causal relationship between the NEV subsidies in China and air quality through a two-way fixed effects model and a theoretical model. Combining data on staggered prefecture-level city implementation of the subsidies with remote-sensing daily PM2.5 concentration data, we show that the subsidies for NEVs in China significantly improved air quality. The subsidy of NEVs in the private sector (EVPV) reduced PM2.5 concentration by 3% for the current year and 3.2% two years after. In particular, the effect of the EVPV implemented two years after increases by 5.7% with an additional 10,000 people, increases by 3.1% with an additional million civilian cars, increases by 0.3% with another one key corporation related to NEVs existed in the city, and in medium city, large city, megacity and megalopolis is significantly positive on air quality as compared with that in small city. In addition, the EVPV implemented for the current year and two years after reduce PM2.5 concentration by an additional 1.6% and 3.4% if air quality worsens by 25% in the city, respectively. The subsidy of NEVs in the public sector (EVPB) increased PM2.5 concentration by 4.3% for the one-year lead and reduced PM2.5 concentration by 5% for the current year of the policy implementation. The year before implementation of the EVPB significantly increases PM2.5 concentration in medium city, large city and megacity and the EVPB implemented for the current year reduces PM2.5 concentration by an additional 3.2% if air quality worsens by 25% in the city. Driving and purchasing restrictions have significant impact on the causal relationship of the EVPB on air quality. Our results remain robust through a series of robustness tests. By developing a theoretical model, we analyze the effect of subsidy policy on air quality as a supplement for empirical results and compare the optimal subsidy intensities for NEVs from the perspectives of consumer surplus, emissions and social welfare. The results indicate that the cost of subsidy policies is lower at the initial stage of the promotion of NEVs, while when consumers begin to accept NEVs widely, the cost of the subsidy policies will increase accordingly.

Corporate Social Responsibility Initiatives and its Influence on Firm Performance: The Stakeholder’s Perspective

The objective of the study is to measure the effect of different dimensions of CSR on the financial performance of the firm in the manufacturing industry of Pakistan. The socially responsible practices of the firm are divided into two categories: internal CSR practices and external CSR practices. Firm performance was measured in terms of market value and operational profitability. Using two-way fixed effects model, it is concluded firm’s financial value is affected when internal and external CSR practices are employed by the firm. Internal CSR practices have a strong positive effect on operating profitability but no effect on market value. External CSR has strong positive effect on firm market value but strong negative effect of operating profitability.

Two-Way Fixed Effects Estimation on the Impact of rising house prices on the capital structure of real enterprises in China

Since the implementation of China's reform and opening-up policy, rapid economic growth has led to the rapid development of the real estate market and housing prices have entered the fast lane of growth. As housing prices rise, the allocation of credit funds in China will continue to be tilted towards the real estate sector. This has a "crowding out" effect on the real economy and is not conducive to the positive optimisation of corporate capital structure. Little research exists on the lagged nature of house price inflation and its impact on the capital structure of real enterprises. To fill this gap, this paper investigates the lagged effect of house price changes on the adjustment of capital structure of real enterprises and the heterogeneity between regions based on a two-way fixed effects model with a sample of 30 Chinese provinces over the period 2000-2020. The study finds that in the short run, rising house prices do not have a significant impact on the capital structure of real enterprises. In the long run, enterprises' debt levels rise and their capital structure adjusts negatively. There is a lag in the central and western regions and no lag in the eastern regions. After a series of robustness tests, the results remain significant and robust. This study provides a reference for the government to establish a long-term mechanism for the stable development of the real estate market.

Mechanism and Impact of Digital Economy on Urban Economic Resilience under the Carbon Emission Scenarios: Evidence from China’s Urban Development

China is currently experiencing a phase of high-quality development, and fostering the resilience of the urban economy is key to promoting this development. The growth of the digital economy is seen as critical to achieving this goal. Therefore, it is necessary to study the mechanism by which the digital economy affects urban economic resilience and the impact of carbon emissions. To this end, this paper empirically analyzes the mechanisms and impacts of the digital economy on urban economic resilience using panel data from 258 prefecture-level cities in China between 2004 and 2017. The study employs a two-way fixed effect model and a moderated mediation model. The results show that: (1) The development of the digital economy can significantly improve the resilience of the urban economy in different periods and different city sizes; (2) The development of the digital economy promotes the economic resilience of developed cities and eastern cities more significantly; (3) In the context of carbon emissions, the digital economy positively contributes to urban economic resilience through population quality and industrial structure but negatively contributes to urban economic resilience through above-scale enterprises; (4) Carbon emissions have a positive moderation effect on the historical path of the industrial structure, above-scale enterprises, and the front path of population quality in the mechanism of the role of the digital economy on the economic resilience of cities, and a negative moderation effect on the front path of above-scale enterprises. Based on these findings this paper proposes several suggestions, such as revolutionizing the digital development of cities, optimizing regional industrial collaboration, accelerating the training of digital talents, and preventing the disorderly expansion of capital.

The Impact of Financial Technology on the Financial Value of Enterprises

In the context of the scientific and technological revolution and industrial transformation, financial technology has developed vigorously, solving the problem of financing difficulties for SMEs. And it enables SMEs to develop smoothly and improve self-value. So, it is of great importance to go deeply into the impact of financial technology on the enterprise’s value. Based on the financial data source of Chinese A-share listed companies and the digital inclusive financial index of China’s provinces and cities from 2013 to 2020, this paper uses the two-way fixed effect model to explore the relationship between financial technology and the financial value of enterprises. This paper finds that the development of financial technology can effectively enhance enterprises’ financial value. Therefore, enterprises should correctly use the advantages brought by financial technology to achieve value enhancement, which is of great significance to most enterprises.

Research on the mechanism and countermeasures of digital economy development promoting carbon emission reduction in jiangxi province

The digital economy is an important driving force for China’s economic transformation and upgrading, while ‘carbon peak and carbon neutrality’ is the target vision to be achieved in China. As an important support area for the rise of central China, it is an urgent question to investigate whether the development of the digital economy in Jiangxi Province can contribute to the realization of carbon emission reduction. Based on the panel data of 11 urban areas in Jiangxi Province from 2011 to 2020, the article empirically investigates the impact of the digital economy on regional carbon emissions and its mechanism of action by using the two-way fixed-effect model, mediated-effect model, and panel threshold-effect model. The study shows that, firstly, the digital economy has a significant carbon emission reduction effect, and the conclusion still holds after a series of endogeneity and robustness tests. Second, the carbon emission reduction effect of the digital economy differs among different regions, and the carbon emission reduction effect of the digital economy is more obvious in northern Ganzhou and regions with high carbon emission levels. Again, the intermediary effect suggests that the digital economy can promote carbon emission reduction by strengthening the control of foreign investment introduction. Finally, the panel threshold effect analysis with urbanization as the threshold variable shows that there is a non-linear correlation between the effects of the digital economy on carbon emissions. The findings of this paper provide a feasible path and policy reference for Jiangxi Province’s digital economy to contribute to carbon emission reduction goals.

The Impact of Digital Economy on Middle-Income Groups: An Empirical Study in China

This paper explores the impact and mechanism of the digital economy on middle-income groups. In theory, the digital economy can empower middle-income groups by increasing entrepreneurial activity. Empirically, based on the data of CFPS database from 2010 to 2018, this paper measures the proportion of middle-income groups and the development level of digital economy in 25 provinces in China, uses the number of new registrations of private enterprises to describe the entrepreneurial activity, and established a two-way fixed effect model, intermediary mechanism model and heterogeneity analysis model to empirical analysis on this basis. It is found that the digital economy has a significant positive effect on middle-income groups and stimulating entrepreneurial activity is an important transmission mechanism for the digital economy to empower middle-income groups. When other factors remain unchanged, every 1 percentage point increase in the China’s digital economy development index, the proportion of middle-income groups will increase by 0.14%, and the entrepreneurial activity will increase by 0.097%. Further studies have found that significant heterogeneity exists in the effect of middle-income groups empowering middle-income groups. The higher level of digital economy development, the lower impact on middle-income groups, which has the characteristics of diminishing marginal effects.

Dynamic co-movement between economic growth and language: A new perspective of technological progress

To investigate whether language complexity has significant effects on technological progress and economic growth, this paper not only improves a concise endogenous growth model with open economy in which reducing the degree of official language complexity can help one country gain rapid technological progress and economic growth in balanced growth path, but also applies stochastic frontier analysis (SFA) and two-way fixed effect model to investigate our hypothesis. Using the database ethnologue distributed by Lewis et al. (2014) and the Penn World Table 9.1 about 89 countries and regions from 1990 to 2018, we consider the number of verb conjugations of official language to be the indicator of language complexity, and examine its effects on technological change and economic growth. The empirical findings demonstrate that reducing language complexity has a significant positive effect and time-lag influence on technological change and economic output. Meanwhile, the positive effect of linguistic complexity on technological progress and economic growth is stronger for these countries with isolating languages than those with other language families, as well as for middle and low-income countries than high-income countries. For developing countries and these countries with isolating and agglutinative languages, they are urged to simplify their native language and reform the second language learning institution in schools in order to achieve a high level of development.

Does digital transformation promote green innovation? A micro-level perspective on the Solow Paradox

Digitalization and sustainability, as emerging trends, have long attracted both academic and industrial focuses, yet the topic has not been sufficiently investigated at the micro-firm level. Selecting Chinese listed companies from 2010 to 2021 as the research sample and adopting the two-way fixed effects model, the impact of firms’ digital transformation on their green innovation as well as the channels and mechanisms involved are investigated. The empirical results show that, firstly, the digital transformation of firms can significantly promote the quality and quantity of their green innovation. Secondly, internal control is a mediating path for digital transformation to promote green innovation, while financing constraints suppress the above effects, and top management team’s environmental attention positively moderates the promotion of green innovation by corporate digital transformation. Thirdly, the promotion effects are more pronounced in firms that are state-owned, large-scale, ecologically cost-free, and relatively highly financing constrained. The findings suggest that digital transformation has advantages in revealing the “Solow paradox” that persists in the digital era, and the synergistic development of digitalization and greening at the firm level is realistic and feasible.

Does the Digital Economy Promote the Reduction of Urban Carbon Emission Intensity?

The impact of the digital economy is increasing, and its environmental effect has attracted more and more attention. The digital economy promotes the improvement of production efficiency and the government's environmental governance capacity, and contributes to the reduction of urban carbon emission intensity. In order to study the impact of digital economy development on urban carbon emission intensity, this paper analyzes the theoretical basis of the digital economy on the reduction of carbon emission intensity, and then, based on the panel data of cities from 2011 to 2019, uses the two-way fixed effect model for empirical testing. The regression results show that the development of the digital economy has promoted the reduction of carbon emission intensity of cities, promoted the green transformation and upgrading of cities, and lays a foundation for China to achieve carbon peaking and carbon neutralization through the improvement of human capital investment and green innovation level. The basic conclusion is robust by changing core explanatory variables, changing samples, replacing regression methods, and shrinking and truncating tests. The impact of the digital economy on urban carbon emission intensity varies with the location, grade and size of the city. Specifically, the development of the digital economy in cities in the eastern and central regions, cities at or above the sub provincial level, large cities and non-resource-based cities has promoted the reduction of urban carbon emission intensity. In terms of resource-based cities, the development of the digital economy in renewable resource-based cities and resource-based cities dominated by iron ore and oil mining has promoted the decline in urban carbon emission reduction intensity.

The impact of digital finance on stock price crash risk: evidence from China

PurposeThe paper's purpose is to investigate the effects of digital finance on the risk of stock price crashes and the underlying transmission mechanisms, and to provide suggestions to inhibit the stock crash risk (CR).Design/methodology/approachThis paper selects all companies that were listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange from 2011 to 2020. It then uses the two-way fixed effect model and the intermediary effect model to verify such effects.FindingsThe overall outcomes demonstrate such a result that the CR of listed companies in China can be significantly reduced by the development of digital finance, and the overall transparency of business financial information and the equity pledge of controlling shareholders are the two underlying transmission mechanisms that digital finance can cause effects on the CR of stocks.Research limitations/implicationsThe main limitations are that there may exist some problems in the method for evaluating the CR of stocks. And there may be a problem of endogeneity caused by the empirical model cannot control all correlation variables.Practical implicationsThis paper would provide policy implications, for different roles, to inhibit the stock CR and to make the development of the economy more stabilize.Social implicationsDigital finance can promote economic development while restraining financial risks at the same time. Therefore, although this study is based on the relevant data from China, it can also provide a reference for other economies with different basic conditions from China, to promote the overall development of the world economy.Originality/valueThe current academic research on digital finance or stock price CR has been relatively sufficient, but there are few papers that combined both. By combining digital finance with stock CR, this paper researches the influence of digital finance on the CR of stocks through empirical analysis. So, this paper would provide new research ideas and evidence for potential influence factors of the CR of stocks, fill the gap in this research field and provide certain help for subsequent scholars to conduct relevant research.

Can agricultural trade improve total factor productivity? Empirical evidence from G20 countries

Improving agricultural total factor productivity is essential to achieving the high-quality and sustainable development of agriculture. As major global agricultural producers, the G20 countries play an important role in agricultural product trade and development. As such, it is well-positioned to play a positive role in improving agricultural total factor productivity. This paper uses the DEA-Malmquist index method to measure agricultural total factor productivity (TFP) in G20 countries from 2010 to 2019, and analyzes the impact of agricultural trade on TFP using the two-way fixed effects model. It finds that (1) the main source of agricultural TFP growth in G20 countries is technical progress, while the effect of technical efficiency on agricultural TFP is not obvious. (2) Agricultural trade can significantly improve agricultural TFP growth in G20 countries, and the effect is more obvious in developed countries. From the perspective of trade flow, the positive effect of export trade on agricultural TFP is stronger. (3) The institutional environment strengthens the improvement effect of agricultural trade on agricultural TFP. Thus, this study not only provides valuable insight into the relationship between agricultural trade and agricultural productivity, but also offers a strong argument in favor of the formulation of relevant policies to improve agricultural productivity and promote a more sustainable agricultural sector.

The effect of vaccination during the COVID-19 for the restaurant industry

The purpose of the study is to determine whether vaccination rates and the use of franchising have an impact on the volatility of stock returns in the restaurant industry. Based on the agency and resource scarcity theories, this study first examines the effect of vaccinations against COVID-19 on a restaurant firm’s stock return volatilities caused by uncertainty during a crisis. The study further investigates whether firm-specific vaccination rates more greatly reduce stock return volatilities as the degree of franchising increases. With a two-way fixed-effects model, the study finds that the firm-specific vaccination rate reduces volatilities of the firm’s stock returns. However, the study also finds an opposite direction to the moderating effect of franchising in that the more a restaurant firm franchises, the further the risk-reduction effect of its vaccination rate diminishes. Theoretical and practical implications along with limitations are discussed.