Unrelated Regression Approach Research Articles

Capturing the Impact of Unobserved Sector‐Wide Shocks on Stock Returns with Panel Data Model

Unobserved sector‐wide common shocks cause the issue of cross‐sectional dependence (CSD) in panel data modelling of stock returns. In this study we apply two econometric techniques: the seemingly unrelated regression approach and a Bayesian estimator for panel data models with factor structural errors, to allow for CSD within a particular sector. By applying these models to monthly stock returns of S&P100 companies from six sectors over 10 years, we can capture and measure the heterogeneous impacts of not only observed individual company accounting fundamentals and market‐wide common shocks, but also unobservable sector‐wide common shocks. Results from the empirical study show that the impacts from both observed factors and unobserved sector‐wide common shocks vary markedly across companies. After controlling for observed accounting fundamentals and market‐wide common factors, a considerable proportion of the variation in stock returns can be attributed to unobservable sector‐wide common shocks.

Relationship between capital, risk and efficiency

Purpose – This paper aims to investigate the relationship between capital risk and efficiency of Islamic and conventional banks operating in Bangladesh. In this pursuit, the research attempts to answer these questions: do inefficient banks assume more risk? Is there any major difference between Islamic and conventional banks in terms of efficiency and risk taking behavior? Design/methodology/approach – The study collects various bank-level data from the audited financial statements of Islamic and conventional banks for the period of 2001 to 2011. Collected data are analyzed using Stochastic Frontier Analysis for efficiency estimation and Seemingly Unrelated Regression (SUR) approach for assessing the relationship between capital, risk, and efficiency. Findings – Analysis of data shows that conventional banks are more efficient in managing cost than Islamic banks. Moreover, the SUR results show that the relation between capital and efficiency are bidirectional and negative, whereas the relation between capital and risk is also bidirectional but positive for Islamic banks. On the other hand, risk and efficiency are positively related, and the result is bidirectional for conventional banks. Research limitations/implications – The research concentrates on private-commercial banks as proxy for conventional banks. State-owned banks including specialized banks and foreign commercial banks are excluded from the sample due to various anomalies in reporting of financial data. Practical implications – There is a lot of room for Islamic banks to increase productive efficiency because cost efficiency of Islamic banks is less than that of the conventional banks. This can be attributed to the relative small size of Islamic banks in Bangladesh. Because there exists a positive relationship between size and efficiency for Islamic banks, they can concentrate on increasing their size to capitalize on economies of scale. Moreover, the analysis shows that inefficient conventional banks assume higher risk which conforms to moral hazard hypothesis. Therefore, regulatory authorities should discourage banks from exercising such practice for the greater stability of the overall banking system in Bangladesh. Originality/value – A good number of studies is available in the existing literature that compares the performance of Islamic and conventional banks in the case of Bangladesh. However, very few studies are found that examine the relationship between capital, risk and efficiency. Therefore, the research is new for the selected area. As a result, the research is expected to contribute to the existing literature by providing new information.

Are We Sure about the Effects of the Egyptian Uprisings? A Seemingly Unrelated Regressions Approach

Four years after the historic uprising of the Egyptians in January 2011, we aim to understand whether the Egyptian revolution has had a different impact on different sectoral investments in the economy. Using data over the 2002Q1–2014Q2 period and a seemingly unrelated regression equations (SURE) approach that allows for contemporaneous correlation across sectors of the economy, we find that the revolution's effect on sectoral investments has been adverse, on average, but heterogeneous across sectors. Results hold under a number of robustness checks.

Dirty Laundry: Are Chinese Legal Ivory Factories Using Poached Ivory as an Input?

It has been alleged or suspected that the legal ivory factories in China launder poached ivory to make carvings. In this research the throughput of tusks across all 37 factories is analysed. The period covers the first allocation of tusks by the Chinese State Forest Administration in July 2009 up to January 2014. The number of factories is fixed, the number of carvers is stable and ivory carving is time-intensive. Diversion of carver-effort to use illegal ivory must come at the expense of legal output. If laundering is occurring it should have an appreciable effect on the rate at which legal tusks are consumed as carvings. The throughput of 1293 tusks is analysed with two modelling approaches. These were a Vector Error Correction Model (VECM) and a Seemingly Unrelated Regression (SUR) approach. Tusk throughput is affected by the size of the tusk and the experience of the carver. Factories also report tusks used up in production in batches. The models show that this reporting effect is partly explained by the Chinese retail spending cycle. No significant deviation in tusk throughput is detected. This implies that the legal factory system is largely clean of illegal ivory. The results also provide indirect evidence that the illegal ivory entering China is destined largely for a speculative market in raw ivory or for an autonomous illegal factory network.

Corporate Social Responsibility and Firm Debt Maturity

In this article we extend the streams of research on the capital structure of socially responsible firms by studying the impact of Corporate Social Responsibility (CSR) on firm debt maturity. Using a large sample of US firms, we find robust evidence that high CSR firms significantly reduce their debt maturity. In particular, our findings suggest that diversity and community are the dimensions which matter the most in explaining firm debt maturity. Furthermore, our results also show that firm characteristics influence the relationship between CSR and firm debt maturity. Finally, additional tests suggest that high CSR firms substitute shareholders’ equity for long-term debt. This result also holds when using a seemingly unrelated regression approach: CSR decreases the extent to which investments are financed with long-term debt and increases the extent to which investments are financed by short-term debt and shareholders’ equity. Overall, our results support the demand-side view that socially responsible firms use debt maturity to manage CSR overinvestment problems, as well as to signal their high quality and their access to the debt market.

Exploring the Endogenous Relationship between Intellectual Property Rights Protection and Economic Growth

This paper studies the impact of intellectual property rights (IPR) on economic growth as an endogenous factor. Most economic growth theories emphasize on enhancing IPR protection in order to encourage innovation, which stimulates economic growth, but some empirical findings also show that there exists a negative relationship between IPR protection and GDP growth rate. This paper uses the seemingly unrelated regression (SUR) approach and simultaneous equations to examine the endogenous relationship between IPR and economic growth. The empirical analysis implements a panel of data for 46 countries during the period of 2000-2007. This paper finds bilateral negative endogeneity for IPR protection and economic growth. Moreover, population growth, mobile cellular subscription, and high-tech exports significantly promote economic growth. Internet use and economic freedom significantly induce higher IPR protection.

Comparing parametric and non-parametric modelling of diameter distributions on independent data using airborne laser scanning in a boreal conifer forest

This study used two different approaches to model diameter distributions on data from 201 field plots in a boreal conifer forest in south eastern Norway using airborne laser scanning. These two methods were a non-parametric most similar neighbour (MSN) approach and a parametric seemingly unrelated regression (SUR) approach to predict diameter percentiles, and their accuracies were compared by validation with an independent dataset. Based on calculated differences between predicted and observed number of stems on the entire validation dataset, we found that SUR gave unbiased results and that MSN slightly underestimated total number of stems. However, both methods overpredicted the number of stems per hectare in the range of 15.6‐61.5 stems in the smallest diameter classes (between 4 and 12 cm). If the predicted diameter distributions were converted into basal area per hectare (G), both methods gave unbiased results. The average difference for G was 1.9 per cent of the observed value for the MSN approach. The corresponding number for the SUR model was 12.4 per cent. Neither of these differences were statistically significant (P . 0.05). We concluded that the even though both methods overall yielded accurate results, the MSN approach was more reliable in terms of predicting the number of large trees.

Risk Premiums in Interconnected Australian Electricity Futures Markets

We provide an empirical analysis of the relationship between spot and futures prices in interconnected regional Australian electricity markets. Examining ex-post risk premiums in futures markets, we find positive and significant risk premiums for several of the considered regions. Therefore, electricity futures prices cannot be considered as an unbiased estimator of the average realized spot price during the delivery period. Market participants are willing to pay a significant additional compensation to get rid of the exposure to price shocks and spikes in the spot market. We further demonstrate seasonal effects in the observed premiums as well as strong and positive correlations between the observed risk premiums across the considered markets. Overall, the observed premiums indicate risk aversion of market participants, in the Queensland and Victoria electricity market. We also relate realized premiums to variables such as spot price levels, volatility, skewness and kurtosis prior to the delivery period. Due to the high correlation of the observed premiums across the regions, we apply a seemingly unrelated regression (SUR) approach. We find that in particular spot price levels, but also skewness and kurtosis of spot prices contribute significantly to the explanation of realized risk premiums.

Horizontal equity and efficiency at primary health care facilities in rural Afghanistan: A seemingly unrelated regression approach

Producing services efficiently and equitably are important goals for health systems. Many countries pursue horizontal equity – providing people with the same illnesses equal access to health services – by locating facilities in remote areas. Staff are often paid incentives to work at such facilities. However, there is little evidence on how many fewer people are treated at remote facilities than facilities in more densely settled areas. This research explores if there is an association between the efficiency of health centers in Afghanistan and the remoteness of their location.Survey teams collected data on facility level inputs and outputs at a stratified random sample of 579 health centers in 2005. Quality of care was measured by observing staff interact with patients and determining if staff completed a set of normative patient care tasks. We used seemingly unrelated regression to determine if facilities in remote areas have fewer outpatient visits than other rural facilities. In this analysis, one equation compares the number of outpatient visits to facility inputs, while another compares quality of care to determinants of quality.The results indicate remote facilities have about 13% fewer outpatient visits than non-remote facilities, holding inputs constant. Our analysis suggests that facilities in remote areas are realizing horizontal equity since their clients are receiving comparable quality of care to those at non-remote facilities. However, we find the average labor cost for a visit at a remote facility is $1.44, but only $0.97 at other rural facilities, indicating that a visit in a remote facility would have to be ‘worth’ 1.49 times a visit at a rural facility for there to be no equity – efficiency trade-off. In determining where to build or staff health centers, this loss of efficiency may be offset by progress toward a social policy objective of providing services to disadvantaged rural populations.

Modeling nonindustrial private forest landowner behavior in face of woody bioenergy markets

This article analyzed the impacts of emerging woody bioenergy markets on the behavior of nonindustrial private forest (NIPF) landowners in the state of Florida, United States. A seemingly unrelated regression (SUR) approach was used to assess the supply of sawtimber, pulpwood, woody bioenergy and demand for labor. Data was gathered from official statistical reports of the forestry sector in Florida spanning 1970 to 2006. The econometric analysis suggested that consistent own price elasticities could be obtained from the SUR approach. The results indicated that an increased price of woody bioenergy implied an increase in the production of pulpwood and demand for labor. Results also suggested that forest landowners might financially benefit from emerging bioenergy markets.

Ownership structure, corporate governance and capital structure decisions of firms

PurposeThe purpose of this paper is to examine the effect of ownership structure and corporate governance on capital structure decisions of firms on the Ghana Stock Exchange (GSE).Design/methodology/approachTo analyze the impact of ownership structure and corporate governance on firms' financing decisions, unbalanced panel data covering a period from 2002 to 2007 is employed using the seemingly unrelated regression approach to mitigate the effects of multicollinearity among the regressors.FindingsThe regression results reveal that managerial shareholding significantly positively influences the choice of long‐term debt over equity. Among the corporate governance variables, board size is found to be positively and statistically significantly related to capital structure choices. Firm level factors such as volatility in earnings, asset tangibility, dividend payout ratio and profitability are significant determinants of corporate capital structure decisions on the GSE. The findings are largely consistent with theories of capital structure decisions observed in the literature.Originality/valueThe main value of this paper is to provide a comprehensive understanding of the impact of forms of ownership and other governance practices on capital structure decisions of firms from an emerging market perspective.

Farm business decisions and the sustainable growth challenge paradigm

Purpose – The purpose of this paper is to introduce the application of sustainable growth challenge (SGC) model in agricultural finance as a conceptual paradigm and then uses the model to measure sustainable growth rates for Illinois grain and livestock farmers. The SGC concept is used to understand the economic conditions and business decisions made by farmers in certain episodes of the time period analyzed.Design/methodology/approach – A seemingly unrelated regression approach is used to analyze the interrelationships of the four levers of growth using a panel data of Illinois farm‐level financial and operating information. The second analysis flows from the first and examines aggregate US farm data to provide an historical perspective of changes in the SGC over time.Findings – Econometric results indicate the relevance of the SGC model in explaining farm financial and operating decisions. The farms’ tendencies to attain balanced growth seem to be more influenced by asset productivity and leverage decis...

Macroeconomic development and capital structure decisions of firms

PurposeThe purpose of this study is to examine the effect of macroeconomic factors on capital structure decisions of emerging firms.Design/methodology/approachA panel data covering a period from 1990 to 2006 for 34 emerging market countries were analyzed using the seemingly unrelated regression approach to mitigate the effects of multicollinearity and to test for the stability of parameter estimates across the countries.FindingsThe results largely suggest that the effect of macroeconomic factors on capital structure varies with capital structure measurement variable in most cases. Bank credit is significant in predicting capital structure choices of firms. The findings of the research also indicate a significantly negative relationship between gross domestic product (GDP) per capita and capital structure choices. Inflation on the other hand positively influences the choice of short‐term debt over equity. Stock market development is however insignificant in predicting capital structure decisions of firms and expectations of increasing interest rate positively influences firms to substitute long‐term debt for short‐term debt over equity. Most of the control variables namely asset tangibility, return on equity, return on assets and Tobin's Q were significant predictors of corporate financing. The results of the study generally supports existing literature on the impact of investment opportunity set, profitability, and stock market development, inflation, interest rate GDP per capita and bank credit on the capital structure decisions of firms.Originality/valueThe main value of this paper is to analyze the effect of macroeconomic factors on the capital structure decisions of firms using large dataset from emerging countries.

The relationship between the built environment and nonwork travel: A case study of Northern California

Many studies have found that residents living in suburban neighborhoods drive more and walk less than their counterparts in traditional neighborhoods. This evidence supports the advocacy of smart growth strategies to alter individuals’ travel behavior. However, the observed differences in travel behavior may be more of a residential choice than a travel choice. Applying the seemingly unrelated regression approach to a sample from Northern California, we explored the relationship between the residential environment and nonwork travel frequencies by auto, transit, and walk/bicycle modes, controlling for residential self-selection. We found that residential preferences and travel attitudes (self-selection) significantly influenced tripmaking by all three modes, and also that neighborhood characteristics (the built environment and its perception) retained a separate influence on behavior after controlling for self-selection. Both preferences/attitudes and the built environment itself played a more prominent role in explaining the variation in non-motorized travel than for auto and transit travel. Taken together, our results suggest that if cities use land use policies to offer options to drive less and use transit and non-motorized modes more, many residents will tend to do so.

Determinants of capital structure in Irish SMEs

This paper presents an empirical examination of determinants of the capital structure of a sample of 299 Irish small and medium-sized enterprises (SMEs). Results suggest that age, size, level of intangible activity, ownership structure and the provision of collateral are important determinants of the capital structure in SMEs. A generalisation of Zellner’s (Journal of the American Statistical Association 57, 348–368, 1962) seemingly unrelated regression (SUR) approach is used to examine industry effects and to test the stability of parameter estimates across sectors. We find that the influence of age, size, ownership structure and provision of collateral is similar across industry sectors, indicating the universal effect of information asymmetries. Firms overcome the lack of adequate collateralisable firm assets in two ways: by providing personal assets as collateral for business debt, and by employing additional external equity to finance research and development projects.

Predicting tree attributes and quality characteristics of Scots pine using airborne laser scanning data

The development of airborne laser scanning (ALS) during last ten years has provided new possibilities for accurate description of the living tree stock. The forest inventory applications of ALS data include both tree and area-based plot level approaches. The main goal of such applications has usually been to estimate accurate information on timber quantities. Prediction of timber quality has not been focused to the same extent. Thus, in this study we consider here the prediction of both basic tree attributes (tree diameter, height and volume) and characteristics describing tree quality more closely (crown height, height of the lowest dead branch and sawlog proportion of tree volume) by means of high resolution ALS data. The tree species considered is Scots pine (Pinus sylvestris), and the field data originate from 14 sample plots located in the Koli National Park in North Karelia, eastern Finland. The material comprises 133 trees, and size and quality variables of these trees were modeled using a large number of potential independent variables calculated from the ALS data. These variables included both individual tree recognition and area-based characteristics. Models for the dependent tree characteristics to be considered were then constructed using either the non-parametric k-MSN method or a parametric set of models constructed simultaneously by the Seemingly Unrelated Regression (SUR) approach. The results indicate that the k-MSN method can provide more accurate tree-level estimates than SUR models. The k-MSN estimates were in fact highly accurate in general, the RMSE being less than 10% except in the case of tree volume and height of the lowest dead branch.

Service Innovations, Customer Satisfaction, and Firm Value: Asymmetries between Internet-Enabled and Non-Internet-Enabled Service Innovations

As economies in developed and developing countries are increasingly driven by services, the introduction of new services to satisfy customers and improve firm value is becoming a critical issue for managers in both services- and goods-dominant firms. However, prior research on innovation has primarily focused on goods, leaving open important research questions relating to service innovations. We empirically investigate the determinants of the number of service innovations and their interrelationship with customer satisfaction and firm value, while controlling for both firm- and market-specific factors. Furthermore, we examine how these effects differ between Internet-Enabled Service Innovations (IESIs) and Non-Internet-Enabled Service Innovations (NIESIs). We develop a conceptual model and a system of equations that link service innovations, customer satisfaction and firm value. We model the determinants of the number of service innovations, using a zero-inflated Poisson (ZIP) model. We estimate our model on a unique panel data set that we assembled from multiple data sources across multiple industries, using a seemingly unrelated regression (SUR) approach and controlling for unobserved heterogeneity through fixed effects. Our results reveal important insights. IESIs are more strongly influenced by financial resources of the firm and by market growth than NIESIs are. Surprisingly, neither IESIs nor NIESIs have a significant direct effect on customer satisfaction. However, IESIs have a positive and significant effect on firm value.

Sur model with spatial effects: an application to mental health expenditure

This study analyses, through the adoption of a seemingly unrelated regression approach, the temporal evolution of policy interactions among local authorities in England when allocating mental health resources. This new approach in health economics may shed light on the degree of interdependence between adjacent municipalities at a specific point in time (e.g. before, during, or after a change in policy), exploiting the information carried by the panel, rather than that of a single cross-section.

Determinants of the Capital Structure of SMEs: A Seemingly Unrelated Regression Approach

This paper presents an empirical examination of firm characteristic determinants of the capital structure of a sample of 299 Irish small and medium sized firms (SMEs hereafter). Hypotheses are formulated from pecking order and agency theories incorporating a financial growth life cycle approach, and are tested on a number of multivariate regression models. The results suggest that age, size, level of intangible activity, ownership structure and the provision of collateral are important determinants of the capital structure in SMEs. A generalisation of Zellner's (1962) Seemingly Unrelated Regression approach (SUR hereafter) is used to examine industry effects and to test the stability of parameter estimates across sectors. Results suggest that the influence of age, size, ownership structure and provision of collateral is constant across industry sectors, indicating the universal effect of information asymmetries. Surmounting these information asymmetries is influenced by differences in asset structure across sectors, resulting in diverse sectoral financing choices.

The relationship between implied volatility and autocorrelation

PurposeThis paper empirically assesses the determinants of conditional stock index autocorrelation with particular emphasis on the impact of return volatility that are theoretically linked through the behaviour of feedback traders.Design/methodology/approachThe S&P 100, 500 and the NASDAQ 100 index are considered and volatility in each series is captured using option‐implied estimates taken from the Chicago Board Options Exchange. A seemingly unrelated regression approach is used in which trading volume and volatility are simultaneously modelled.FindingsThe results of this study suggest that low or even negative return autocorrelations are more likely in situations where: return volatility is high; price falls by a large amount; traded stock volumes are high; and the economy is in a recessionary phase.Research limitations/implicationsThe results confirm that previous related work showing a link between autocorrelation and volatility is not induced by a mechanical relation.Practical implicationsUsage of endogenously determined volatility measures in this area of the literature is justified.Originality/valueThis study provides a robustness test of the autocorrelation/volatility relation, as well as a further exploration of the utility inherent in option‐implied volatility.