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Article
Publication date: 28 October 2014

Mian Du, Siyan Chen and Huan Shao

The purpose of this paper is to investigate the relationship between corporate governance mechanism and firm value of the listed companies in China. Does the better corporate…

Abstract

Purpose

The purpose of this paper is to investigate the relationship between corporate governance mechanism and firm value of the listed companies in China. Does the better corporate governance lead to the higher firm value? Or does the higher firm value make it easy to choose a better governance mechanism? Or they affect each other? In other words, this paper tries to answer whether the corporate governance mechanism is only decided by institutional arrangement, or by market choice according to firm value or performance or by the interaction of institutional arrangement and market choice? It tries to answer whether institutional arrangement maximizes the firm value, or an invisible hand pushes them to arrive at its maximum.

Design/methodology/approach

This paper establishes an analytic framework of simultaneous equations based on causality, which includes five endogenous variables: ownership of larger shareholders, managerial ownership, director compensation, debt financing and firm value. It adopts 1,644 data samples from 274 Chinese listed companies in Shanghai and Shenzhen Stock Exchange during 2007- 2012 after the non-tradable shares reform. Ordinary least squares (OLS) estimation of single equation, 2SLS and 3SLS estimation of simultaneous equations are respectively done to show the differences of these three kinds of estimations.

Findings

The empirical results show that differences exist among OLS, 2SLS and 3SLS estimation. Finally, 3SLS estimation should be adopted because the OLS and 2SLS estimation are biased. There are endogenous relationships between corporate governance mechanism and firm value. Through the 3SLS estimation, it is found that first, ownership concentration and firm value affect each other positively. Second, managerial ownership and firm value affect each other positively; third, director compensation and firm value affect each other negatively, while director compensation and firm performance affect each other positively. Finally, debt financing level and firm value are negatively related to each other.

Practical implications

It means that ownership of large shareholders, managerial ownership, director compensation and debt financing in the Chinese listed companies are found to have a root in the interaction between institutional arrangement and market choice. It is also found that adverse selection occurs when creditors loan to the listed companies. Managerial compensation is positively related to accounting profit, but it is negatively related to firm value because managers increase profit due by earning management. This could only increase the accounting profits and obtain huge cash compensation, but not increase firm value and even harm the interests of shareholders.

Originality/value

This paper not only shows the difference between OLS and 2SLS estimation but also compares the estimation of 2SLS and 3SLS in terms of empirical methods. It gives answers to the following questions: whether the relationship is one-way causality or bilateral causality between ownership concentration, managerial ownership, director compensation and firm value; whether governance mechanism affects firm value by institutional arrangement, or market drives both of them to strike a balance by an invisible hand. In other words, does it make them arrive at equilibrium through the competitive selection process when shareholders, directors, managers and creditors attempt to maximize themselves of their interests?

Details

Chinese Management Studies, vol. 8 no. 4
Type: Research Article
ISSN: 1750-614X

Keywords

Book part
Publication date: 13 December 2013

Victor Aguirregabiria and Arvind Magesan

We derive marginal conditions of optimality (i.e., Euler equations) for a general class of Dynamic Discrete Choice (DDC) structural models. These conditions can be used to…

Abstract

We derive marginal conditions of optimality (i.e., Euler equations) for a general class of Dynamic Discrete Choice (DDC) structural models. These conditions can be used to estimate structural parameters in these models without having to solve for approximate value functions. This result extends to discrete choice models the GMM-Euler equation approach proposed by Hansen and Singleton (1982) for the estimation of dynamic continuous decision models. We first show that DDC models can be represented as models of continuous choice where the decision variable is a vector of choice probabilities. We then prove that the marginal conditions of optimality and the envelope conditions required to construct Euler equations are also satisfied in DDC models. The GMM estimation of these Euler equations avoids the curse of dimensionality associated to the computation of value functions and the explicit integration over the space of state variables. We present an empirical application and compare estimates using the GMM-Euler equations method with those from maximum likelihood and two-step methods.

Details

Structural Econometric Models
Type: Book
ISBN: 978-1-78350-052-9

Keywords

Article
Publication date: 6 July 2015

Zeyu Ma, Jinglai Wu, Yunqing Zhang and Ming Jiang

The purpose of this paper is to provide a new computational method based on the polynomial chaos (PC) expansion to identify the uncertain parameters of load sensing proportional…

190

Abstract

Purpose

The purpose of this paper is to provide a new computational method based on the polynomial chaos (PC) expansion to identify the uncertain parameters of load sensing proportional valve (LSPV), which is commonly used to improve the efficiency of brake system in heavy truck.

Design/methodology/approach

For this investigation, the mathematic model of LSPV is constructed in the form of state space equation. Then the estimation process is implemented relying on the experimental measurements. With the coefficients of the PC expansion obtained by the numerical implementation, the output observation function can be transformed into a linear and time-invariant form. The uncertain parameter recursively update functions based on Newton method can therefore be derived fit for computer calculation. To improve the estimation accuracy and stability, the Newton method is modified by employing the acceptance probability to escape from the local minima during the estimation process.

Findings

The accuracy and effectiveness of the proposed parameter estimation method are confirmed by model validation compared with other estimation methods. Meanwhile, the influence of measurement noise on the robustness of the estimation methods is taken into consideration, and it is shown that the estimation approach developed in this paper could achieve impressive stability without compromising the convergence speed and accuracy too much.

Originality/value

The model of LSPV is originally developed in this paper, and then the authors propose a novel effective strategy for recursively estimating uncertain parameters of complicate pneumatic system based on the PC theory.

Details

Engineering Computations, vol. 32 no. 5
Type: Research Article
ISSN: 0264-4401

Keywords

Article
Publication date: 11 November 2014

Rick L. Andrews and Peter Ebbes

This paper aims to investigate the effects of using poor-quality instruments to remedy endogeneity in logit-based demand models. Endogeneity problems in demand models occur when…

Abstract

Purpose

This paper aims to investigate the effects of using poor-quality instruments to remedy endogeneity in logit-based demand models. Endogeneity problems in demand models occur when certain factors, unobserved by the researcher, affect both demand and the values of a marketing mix variable set by managers. For example, unobserved factors such as style, prestige or reputation might result in higher prices for a product and higher demand for that product. If not addressed properly, endogeneity can bias the elasticities of the endogenous variable and subsequent optimization of the marketing mix. In practice, instrumental variables (IV) estimation techniques are often used to remedy an endogeneity problem. It is well-known that, for linear regression models, the use of IV techniques with poor-quality instruments can produce very poor parameter estimates, in some circumstances even worse than those that result from ignoring the endogeneity problem altogether. The literature has not addressed the consequences of using poor-quality instruments to remedy endogeneity problems in non-linear models, such as logit-based demand models.

Design/methodology/approach

Using simulation methods, the authors investigate the effects of using poor-quality instruments to remedy endogeneity in logit-based demand models applied to finite-sample data sets. The results show that, even when the conditions for lack of parameter identification due to poor-quality instruments do not hold exactly, estimates of price elasticities can still be quite poor. That being the case, the authors investigate the relative performance of several non-linear IV estimation procedures utilizing readily available instruments in finite samples.

Findings

The study highlights the attractiveness of the control function approach (Petrin and Train, 2010) and readily available instruments, which together reduce the mean squared elasticity errors substantially for experimental conditions in which the theory-backed instruments are poor in quality. The authors find important effects for sample size, in particular for the number of brands, for which it is shown that endogeneity problems are exacerbated with increases in the number of brands, especially when poor-quality instruments are used. In addition, the number of stores is found to be important for likelihood ratio testing. The results of the simulation are shown to generalize to situations under Nash pricing in oligopolistic markets, to conditions in which cross-sectional preference heterogeneity exists and to nested logit and probit-based demand specifications as well. Based on the results of the simulation, the authors suggest a procedure for managing a potential endogeneity problem in logit-based demand models.

Originality/value

The literature on demand modeling has focused on deriving analytical results on the consequences of using poor-quality instruments to remedy endogeneity problems in linear models. Despite the widespread use of non-linear demand models such as logit, this study is the first to address the consequences of using poor-quality instruments in these models and to make practical recommendations on how to avoid poor outcomes.

Details

Journal of Modelling in Management, vol. 9 no. 3
Type: Research Article
ISSN: 1746-5664

Keywords

Article
Publication date: 25 January 2013

Guojin Chen, Aihuan Xu and Xiangqin Zhao

The aim of this paper is to empirically analyze the source of commonality in liquidity change in China's stock market.

Abstract

Purpose

The aim of this paper is to empirically analyze the source of commonality in liquidity change in China's stock market.

Design/methodology/approach

This paper used two‐step test method in Coughenour and Saad and empirically tested the relationship between institutional investors' involuntary trading behaviors and commonality in liquidity change in China's stock market.

Findings

The results showed that to take the open‐end fund as a representative of institutional investors, their involuntary trading behaviors were an important source of commonality in liquidity change in China's stock market.

Originality/value

For a long time, the domestic researchers have ignored the study about the source of commonality in liquidity change in China's stock market. But, this study's conclusion expanded the explanation about the source of commonality in liquidity change in China's stock market from a new point of view that the demand‐side explanation. Because there is no market‐maker trading behaviors in China's stock market, the paper cannot explain the source of commonality in liquidity change in China's stock market from the point of view of the supply‐side explanation.

Details

China Finance Review International, vol. 3 no. 1
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 8 April 2014

Dennis Olson and Taisier A. Zoubi

This study aims to examine the determinants of the allowance for loan losses (ALL) and loan loss provisions (LLP) for banks in the Middle East and North African (MENA) region…

Abstract

Purpose

This study aims to examine the determinants of the allowance for loan losses (ALL) and loan loss provisions (LLP) for banks in the Middle East and North African (MENA) region using both a two-stage approach and simultaneous equation system to address the potential problem of estimation bias introduced by estimating the ALL and LLP separately. The paper also tests three competing hypotheses: the earnings management hypothesis, the capital management hypothesis, and the signaling hypothesis.

Design/methodology/approach

The authors adopt a simultaneous equation and three-stage approaches to test whether MENA banks jointly determine LLP and ALL and the determinants of the two accounts. The sample consists of all available electronic data for 75 banks (451 bank-year observations) in nine MENA countries over the period 2000-2008.

Findings

Evidence suggests that the two accounts are jointly determined. The results support the earnings management hypothesis – meaning that MENA banks have engaged in year-to-year income smoothing. The authors also find that LLP and ALL provide signals about future earnings.

Research limitations/implications

The authors acknowledge that the LLP account is only one of many accounts on the income statement that could be used for signaling or to manage earnings, and that the ALL is one of several accounts that could be used for signaling, earnings or capital management. Future studies could examine other accruals for their role in managing earnings, signaling and capital.

Practical implications

The results indicate that bank managers use LLP and ALL accounts to manage earnings management, policy makers may want to limit the ability of banks to manipulate earnings.

Originality/value

Prior research on the loan loss accounting practices has been based on single equation models of the determinants of LLP and ALL. An issue that has not been adequately addressed in this literature is that ALL and LLP may be interrelated and jointly determined by banks. If the two accounts are not independent of each other, failure to include one when estimating the other may lead to an omitted variable problem, while including both in the same equation induces a potential simultaneity bias. The study is the first empirical work examining whether ALL and LLP are jointly determined by banks. By jointly estimating LLP and ALL, the study permits an assessment of the magnitude of the potential error from adopting ordinary least squares estimation of a single equation model.

Details

Journal of Islamic Accounting and Business Research, vol. 5 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 31 May 2022

Jiacai Wang, Jiaoliao Chen, Libin Zhang, Fang Xu and Lewei Zhi

The sensorless external force estimation of robot manipulator can be helpful for reducing the cost and complexity of the robot system. However, the complex friction phenomenon of…

Abstract

Purpose

The sensorless external force estimation of robot manipulator can be helpful for reducing the cost and complexity of the robot system. However, the complex friction phenomenon of the robot joint and uncertainty of robot model and signal noise significantly decrease the estimation accuracy. This study aims to investigate the friction modeling and the noise rejection of the external force estimation.

Design/methodology/approach

A LuGre-linear-hybrid (LuGre-L) friction model that combines the dynamic friction characteristics of the robot joint and static friction of the drive motor is proposed to improve the modeling accuracy of robot friction. The square root cubature Kalman filter (SCKF) is improved by integrating a Sage Window outer layer and a nonlinear disturbance observer (NDOB) inner layer. In the outer layer, Sage Window is integrated in the square root Kalman filter (W-SCKF) to dynamically adjust noise statistics. NDOB is applied as the inner layer of W-SCKF (NDOB-WSCKF) to obtain the uncertain state variables of the state model.

Findings

A peg-in-hole contact experiment conducted on a real robot demonstrates that the average accuracy of the estimated joint torque based on LuGre-L is improved by 4.9% in contrast to the LuGre model. Based on the proposed NDOB-WSCKF, the average estimation accuracy of the external joint torque can reach up to 92.1%, which is improved by 4%–15.3% in contrast to other estimation methods (SCKF and NDOB).

Originality/value

A LuGre-L friction model is proposed to handle the coupling of static and dynamic friction characteristics for the robot manipulator. An improved SCKF is applied to estimate the external force of the robot manipulator. To improve the noise rejection ability of the estimation method and make it more resistant to unmodeled state variable, SCKF is improved by integrating a Sage Window and NDOB, and a NDOB-WSCKF external force estimator is developed. Validation results demonstrate that the accuracy of the robot dynamics model and the estimated external force is improved by the proposed method.

Details

Industrial Robot: the international journal of robotics research and application, vol. 50 no. 1
Type: Research Article
ISSN: 0143-991X

Keywords

Article
Publication date: 8 July 2014

Cassia Marchon

Most intergenerational mobility studies use data on two generations to estimate the elasticity between son's and father's earnings. The purpose of this paper is to use a data set…

Abstract

Purpose

Most intergenerational mobility studies use data on two generations to estimate the elasticity between son's and father's earnings. The purpose of this paper is to use a data set spanning three generations to estimate additional relationships between a person's earnings and family background yielded by intergenerational mobility models such as Becker-Tomes (1979) model and modified versions of it.

Design/methodology/approach

The paper uses data from the 1996 PNAD – a nationally representative household survey in Brazil. The author builds a data set consisting of 5,125 grandfather-father-son triplets by taking advantage of two characteristics of Brazil. First, commonly in Brazil, individuals live with their parents until they marry. Second, individuals tended to quit school and begin working at an early age. As a result, there are many households with adult sons who are not at the very beginning of their working careers. Since the sample is limited to households with adult sons, the author applies Heckman (1979) estimation procedure to address selection bias.

Findings

Estimation results contradict some predictions of simple versions of the Becker and Tomes model. The paper proposes a modified version of the Becker and Tomes model that allows for a skipping generation effect, and finds that family background explains 34.9 percent of the variation in earnings among males aged 16-27 in Brazil. If there were no differences in endowments (talent, IQ, health, physical appearance, attitudes toward work, family connections, etc.), the variation in earnings would fall by no less than 26 percent. If it were possible to eliminate differences in investment in human capital, the variation in earnings would fall by at most 21.1 percent.

Research limitations/implications

The paper has two main data limitations. First, the 1996 earnings of the fathers and sons are used as proxies for lifetime earnings although the transitory component of one-year earnings may be quite large, particularly at young ages. Second, in spite of the efforts to deal with the sample selection bias, the paper shows that the intergenerational elasticity in earnings for the sons aged 22-27 is about 14.6 percent lower for the subsample of households with adult sons than for the full sample.

Practical implications

The paper finds evidence supporting the existence of a direct effect of the grandparents on the grandchildren beyond their influence on the parents, and reinforces consideration of this factor in intergenerational mobility studies.

Social implications

The findings in this paper may suggest a room for improvements in economic outcomes of children in less privileged families through investment in formal education as well as policies that considers other aspects of a person's life. For instance, Bolsa Família – a Brazilian government program that provide cash allowances to poor families conditional on children school attendance – may improve the economic outcomes of poor children by enforcing formal education and by lessening the children hardships at home.

Originality/value

The paper proposes a modified version of the Becker and Tomes model which allows for a skipping generation effect. Under the assumptions of the modified model and in hand with a three-generations data set from Brazil, the paper estimates a lowerbound for the variation in earnings explained by differences in endowments across families, and an upperbound for the variation in earnings explained by differences in human capital.

Details

Journal of Economic Studies, vol. 41 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 1 March 1991

David Blake

The different types of estimators of rational expectations modelsare surveyed. A key feature is that the model′s solution has to be takeninto account when it is estimated. The two…

Abstract

The different types of estimators of rational expectations models are surveyed. A key feature is that the model′s solution has to be taken into account when it is estimated. The two ways of doing this, the substitution and errors‐in‐variables methods, give rise to different estimators. In the former case, a generalised least‐squares or maximum‐likelihood type estimator generally gives consistent and efficient estimates. In the latter case, a generalised instrumental variable (GIV) type estimator is needed. Because the substitution method involves more complicated restrictions and because it resolves the solution indeterminacy in a more arbitary fashion, when there are forward‐looking expectations, the errors‐in‐variables solution with the GIV estimator is the recommended combination.

Details

Journal of Economic Studies, vol. 18 no. 3
Type: Research Article
ISSN: 0144-3585

Keywords

Book part
Publication date: 19 December 2012

Hild Marte Bjørnsen and Ashok K. Mishra

The objective of this study is to investigate the simultaneity between farm couples’ decisions on labor allocation and production efficiency. Using an unbalanced panel data set of…

Abstract

The objective of this study is to investigate the simultaneity between farm couples’ decisions on labor allocation and production efficiency. Using an unbalanced panel data set of Norwegian farm households (1989–2008), we estimate off-farm labor supply of married farm couples and farm efficiency in a three-equation system of jointly determined endogenous variables. We address the issue of latent heterogeneity between households. We solve the problem by two-stage OLS and GLS estimation where state dependence is accounted for in the reduced form equations. We compare the results against simpler model specifications where we suppress censoring of off-farm labor hours and endogeneity of regressors, respectively. In the reduced form specification, a considerably large number of parameters are statistically significant. Davidson–McKinnon test of exogeneity confirms that both operator and spouse's off-farm labor supply should be treated as endogenous in estimating farming efficiency. The parameter estimates seem robust across model specifications. Off-farm labor supply of farm operators and spouses is jointly determined. Off-farm work by farm operator and spouses positively affects farming efficiency. Farming efficiency increases with operator's age, farm size, agricultural subsidises, and share of current investment to total farm capital stock.

Details

Essays in Honor of Jerry Hausman
Type: Book
ISBN: 978-1-78190-308-7

Keywords

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