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The authors propose inference methods for endogeneity parameters in linear simultaneous equation models allowing for weak identification and missing instruments. Endogeneity parameters measure the impact of unobserved variables which may be correlated with observed explanatory variables, and play a central role in determining the “bias” associated with endogeneity and measurement errors in structural equations. These results expand, in several ways, the finite-sample theory in Doko Tchatoka and Dufour (2014) for this problem. The latter theory relies on relatively restrictive assumptions, in particular the hypothesis that the reduced form is complete (e.g., contains all the relevant instruments), which is questionable in many practical situations. While the new proposed inference methods retain identification robustness, they also allow the reduced form to be incomplete, for example, due to missing instruments. The authors propose easily applicable inference methods for endogeneity parameters – in particular, two-stage procedures (similar to those in Dufour, 1990). An application to a model of returns to schooling is presented.

The authors investigate the impact of the stringency of environmental policy on the financial performance of European automobile manufacturers. This paper contributes to the debate about the impact of environmental policy on a firm's competitive performance.

The authors use cross-country sector-level panel data for 71 firms from 18 European countries from 2010 to 2019. The authors apply a fixed-effect model and then, to address the endogeneity issues, the authors use the generalized method of moments (GMM) model. To further examine the validity of the results, the authors use a data-mining modeling approach as a robustness test.

By considering the dynamic impact of environmental policy and overcoming the endogeneity issues, the results show that the impact of the stringency of environmental policy on a firm's financial performance depends on the time horizon: the stringency of environmental policy has a short-term negative impact but a long-term positive impact on a firm's financial performance.

The authors limited the study to the auto industry in Europe. In addition, future research could consider the impact of environmental policy on other financial performance indicators such as Return on Sales or Return on Equity. Also, it would be interesting to conduct a similar study in the United States or China using a firm-level data set to examine the robustness of the results.

Stringency of environmental policy improves a firm's financial performance in the long term. It is essential for firms and managers to consider the dynamic impacts of environmental policy on their financial performance and adopt a long-term perspective when evaluating the costs and benefits of complying with environmental regulations. The findings help management develop a long-term vision for investment and budget allocation. The results support management's view for strategic decision-making against the common budget argument and challenges for stockholders when it comes to adopting new technologies and planning long-term investment.

It is crucial for firms to recognize the broader societal benefits that come with environmental policy. Firms must not only focus on their financial performance but also on their social responsibility to protect the environment and contribute to the greater good. Therefore, firms must take a long-term perspective and recognize the broader societal benefits of environmental policy in order to make informed decisions that support both their financial success and their social responsibility.

This paper contributes to the literature by helping to explain the inconsistent results of studies about the impact of environmental policy on a firm's competitiveness. Using a firm's financial performance as one of the main metrics for competitiveness, this study takes into account both endogeneity and contemporaneity in evaluating the impact of the stringency of environmental policy on a firm's financial performance.

This study aims to discuss climate change, by modifying the timing of several agricultural operations, reduce the efficiency and yield of inputs leading to a lower production level. The reduction of the effects of climate change on production yields and on farmers' technical efficiency (TE) requires the adoption of adaptation strategies. This paper analyses the impact of climate change adaptation strategies adopted on maize farmers' TE in Benin.

This paper uses an endogeneity-corrected stochastic production frontier approach based on data randomly collected from 354 farmers located in three different agro-ecological zones of Benin.

Estimation results revealed that the adoption of adaptation strategies improve maize farmers' TE by 1.28%. Therefore, polices to improve farmers' access to climate change adaptation strategies are necessarily for the improvement of farmers' TE and yield.

The results of this study contribute to the policy debate on the enhancement of food security by increasing farmers' TE through easy access to climate change adaptation strategies. The improvement of farmers' TE will in turn improve the livelihoods of the communities and therefore contribute to the achievement of Sustainable Development Goals 1, 2 and 13.

This study contributes to theoretical and empirical debate on the relationship between adaptation to climate change and farmers' TE. It also adapts a new methodology (endogeneity-corrected stochastic production frontier approach) to correct the endogeneity problem due to the farmers' adaptation decision.

The concepts of complexity, endogeneity and circular causation – Myrdal's term was cumulative causation – are shown to be interrelated ones in configuring an economic model in the framework of systemic embedding and its empirical application.

The ensuing framework of economic modeling with complexity provides a controllable and predictable overarching worldview. Anomie in the economic universe and its embedded world‐system are analytically rejected. This consequence is due to the epistemic nature of modeling that combines complexity, endogeneity, and circular causation for attaining predictability and controllability, even in the face of complex systemic perturbations. The epistemology of unity of knowledge contrasted with rationalism is treated as the foundational worldview. An illustrative empirical work is given to convey the conceptual model and its applied viability.

Both the theoretical and empirical results point out how the induced effects of knowledge flows in reference to the epistemology of unity of knowledge continuously improves the complementary relationships of the evolutionary learning fields, and rejects marginalism as being logically non‐sequiter in such epistemic systems.

More variables and data would increase the explanation of the continuous simulation in the evolutionary learning world‐system model.

More data would increase the versatility of the empirical exercise.

The study is based on the idea of social and economic interface in extending the scope of economic modeling.

The paper is very original in the area of heterodox economics that questions orthodox economic postulates and presents the complex methodology by circular causation method instead.

This paper aims to analyse the influence of cooperation on the degree of novelty of technological innovations introduced by industrial firms in Argentina. This influence is analysed from three perspectives: cooperation by partner type [business partners or scientific and technological centres (S&T) partners]; cooperation by number of partner types, from no cooperation to cooperation with two partner types; and cooperation by goals pursued by firms.

The data come from one of the last national innovation surveys conducted in Argentina. The study controls for endogeneity, using instrumental variable procedures within the conditional mixed-process (CMP) framework.

The main result is the influence of cooperation with universities and S&T centres on the introduction of more novel innovations, which was found both in estimations with and without endogeneity correction. This influence was verified for more complex goals (R&D, technology transfer and industrial design and engineering) as well as for less complex ones (tests and trials, human resources training, quality management and certification). Business cooperation seems to impact only on a lower degree of novelty for more complex goals. The increase in the number of partners that the firm cooperates with, from no cooperation to joint cooperation with two partner types, influences more novel innovations.

Limitations and proposals for future research are discussed at the end of the study.

The results of this study contrast with the high propensity to cooperate with business partners shown by firms in Argentina and other Latin American countries. Therefore, this paper may help formulate more effective policies to promote cooperation conducive to firm innovation performance. Limitations and proposals for future research are discussed at the end of the study.

Although there is empirical evidence on this topic for developed countries, firm-level studies on cooperation and degree of novelty are scarce for Latin America. In addition, this paper analyses cooperation not only by type of partner but also by type of goal. This study attempted to control for endogeneity by using instrumental variables within the CMP framework.

The purpose of this study is to examine the effects of health on wages of Australian workers, with a focus on gender differences and the role of macroeconomic conditions in the effects.

The first 15 waves of the Household, Income and Labour Dynamics in Australia survey are used to estimate a wage model that accounts for the endogeneity of health, unobserved heterogeneity and sample selection bias.

The results show that, after accounting for the endogeneity of health, unobserved heterogeneity and sample selection bias, better health increases wages for Australian male workers, but not for female workers. The results also show that accounting for the endogeneity of health, unobserved heterogeneity and potential sample selection bias is important in estimating the effects of health on wages. In particular, a simple ordinary least squares estimator would underestimate the effect of health on wages for males, while overestimate it for females, and simply addressing the endogeneity of health using instrumental variables could overestimate the effect for both genders. It is also found that the effects of health on wages fall under depressed macroeconomic conditions, perhaps due to reduced job mobility and increased presentism during a recession.

This study adds to the international literature on the effects of health on wages by providing empirical evidence from Australia. The model applied to estimate the effects takes advantage of a panel dataset to address the bias resulting potentially from all the sources of the endogeneity of health, unobserved heterogeneity and sample selection. The results indeed show that failing to address these issues would substantially bias the estimated effects of health on wages.

In the paper “Predicting the Outcome of Tender Offers: An Endogeneity Problem”, we argue that previous econometric models designed to predict the outcome of tender offers have been estimated incorrectly. We illustrate that the source of the estimation error comes from variables which are posited to explain the outcome of tender offers and treated as exogenous when in fact they are endogenous. We discuss the possibility, using the Nelson‐Olson simultaneous equation model, to solve the endogeneity problem. Although correct at the theoretical level we did not actually estimate the model using the Nelson‐ Olson technique. The complexity of applying the Nelson‐ Olson technique motivated us to search for an alternative solution to the endogeneity problem.

The purpose of this paper is to investigate the causal relationship between extent of diversification and performance among Indian companies. The key issue is to find out whether diversification provides irresistible opportunities to increase firm performance or is it the superior profitability that motivates management to diversify.

Product diversification is calculated by using Entropy index measure. To measure joint endogeneity of corporate diversification and firm performance, both variables are treated as endogenous in a simultaneous equation model.

The results report that the association between diversification and performance turn strongly significant and positive after controlling the issue of endogeneity. The study finds a strong two-way relationship between extent of diversification and firm performance. As indicated by the results, the extent of diversification is positively related to performance, thereby implying that diversified firms experience a significant diversification premium. The study also demonstrates a positive relation of performance and total diversification indicating that good performance leads to greater diversification.

Certain variables such as R&D intensity, export intensity and risk could not be included in the analysis for want of data. Inclusion of these independent variables could have strengthened the model and its implications.

The results strongly implicate/recommend the managers of developing countries to adopt the strategy of diversification to overcome institutional inefficiencies prevailing in their domicile environment. Corporate heads must also capture the correct timings/dynamism in environment before pursuing diversification as a strategy of growth. There exists causality between diversification and performance; hence, profitable firms should capitalize synergetic effects of diversification strategy and use it as a medium of growth.

There was hardly any literature available on causal relationship between diversification and performance with respect to emerging countries. There was even a wider gap specifically in relation to India where none of the researchers has so far studied causality between diversification and performance controlling endogeneity.

Firm size has been identified as one of the most important correlates with corporate social performance (CSP). Both conceptual and empirical research has been done to try to explicate and determine this relationship; however, the results from both theoretical and empirical research have indicated a mixed and sometimes inconsistent relationship because of endogeneity between firm size and CSP. This paper aims to add to the body of knowledge by identifying and addressing some of the limitations in determining the relationship between firm size and CSP.

Using the Arellano–Bond method to control for the endogeneity, this study tests the relationship between CSP and firm size using a panel of 380 public companies of various sizes; in various industry types; and across 19 countries in North America, Europe and Asia over a six-year period.

The results of the study show that firm size positively influences CSP and its subcomponents when endogeneity has been controlled for.

This study lends support for the theory of the firm framework that CSP attributes are embedded in the production process that leads to higher economies of scale, and the resource-based view of firms where firms that possess valuable and inimitable resources in CSR can lead to a sustainable competitive advantage over competitors. This suggests that as firms grow in size, they can leverage their resources to achieve greater economies of scale that will lead to better CSP over time.

This study addresses the potential endogeneity problem between firm size and CSP and offers a broader testing context.

Poison pill adoption is often considered as the most effective tactic to fend off an unsolicited takeover bid. However, it is difficult to identify the deterrent effect because the adoption is naturally endogenous. The purpose of this paper is to use plausibly exogenous instruments to mitigate the endogeneity problem.

The author employs two econometric models: the linear probability model and the bivariate probit model to examine the effect of poison pills on the outcome of a takeover.

Using a sample of 655 unsolicited takeovers, the author finds that poison pills substantially reduce the likelihood that a takeover bid, once undesirably placed, is completed. This negative impact strongly supports the manager entrenchment hypothesis in that managers adopt poison pills to ensure the continuation of their private benefits. However, the author finds no strong evidence consistent with the shareholder interest hypothesis that poison pills enhance the management’s ability to negotiate higher premiums or reject inadequate offers.

The demise of the market for unsolicited takeovers with the disappearance of poison pills can be explained by the fact that poison pills, if adopted, will have an absolute deterrent effect on the takeover likelihood of success, and targets always have the power to adopt them instantly.

There should be policies to limit the power of managers to adopt poison pills because it causes the entrenchment problem which will negatively affect the firm value.

The author tackles the problem of the endogeneity of poison pill adoptions. The author shows that poison pills have a strong negative effect on the takeover outcome and the result can explain the decreasing number of unsolicited takeovers.