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Article
Publication date: 8 January 2024

Marcellin Makpotche, Kais Bouslah and Bouchra M’Zali

This study aims to exploit Tobin’s Q model of investment to examine the relationship between corporate governance and green innovation.

Abstract

Purpose

This study aims to exploit Tobin’s Q model of investment to examine the relationship between corporate governance and green innovation.

Design/methodology/approach

The study is based on a sample of 3,896 firms from 2002 to 2021, covering 45 countries worldwide. The authors adopt Tobin’s Q model to conceptualize the relationship between corporate governance and investment in green research and development (R&D). The authors argue that agency costs and financial market frictions affect corporate investment and are fundamental factors in R&D activities. By limiting agency conflicts, effective governance favors efficiency, facilitates access to external financing and encourages green innovation. The authors analyzed the causal effect by using the system-generalized method of moments (system-GMM).

Findings

The results reveal that the better the corporate governance, the more the firm invests in green R&D. A 1%-point increase in the corporate governance ratings leads to an increase in green R&D expenses to the total asset ratio of about 0.77 percentage points. In addition, an increase in the score of each dimension (strategy, management and shareholder) of corporate governance results in an increase in the probability of green product innovation. Finally, green innovation is positively related to firm environmental performance, including emission reduction and resource use efficiency.

Practical implications

The findings provide implications to support managers and policymakers on how to improve sustainability through corporate governance. Governance mechanisms will help resolve agency problems and, in turn, encourage green innovation.

Social implications

Understanding the impact of corporate governance on green innovation may help firms combat climate change, a crucial societal concern. The present study helps achieve one of the precious UN’s sustainable development goals: Goal 13 on climate action.

Originality/value

This study goes beyond previous research by adopting Tobin’s Q model to examine the relationship between corporate governance and green R&D investment. Overall, the results suggest that effective corporate governance is necessary for environmental efficiency.

Details

Review of Accounting and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 13 August 2021

Fanyu Chen, Siong Hook Law, Zi Wen Vivien Wong and W.N.W Azman-Saini

This study aims to examine the effects of institutions on private investment (PI) using panel data analysis, where the sample countries consist of 100 countries around the world…

Abstract

Purpose

This study aims to examine the effects of institutions on private investment (PI) using panel data analysis, where the sample countries consist of 100 countries around the world and the time period is covering from 2007 to 2016. The system generalized method of moments (GMM) estimator, introduced by Arellano and Bond (1991) and further developed by Blundell and Bond (1998) is used to analyze the data sets.

Design/methodology/approach

This study uses the panel data approach to estimate the empirical model due to the panel nature of the data. In particular, due to the presence of lagged dependent variables and the ability to capture individual country-specific effects, the system GMM estimator, introduced by Arellano and Bond (1991) and further developed by Blundell and Bond (1998), is adopted to analyze the roles of institutions in PI. The system GMM is developed specifically to solve the problems of weak instruments and persistency (Blundell and Bond, 1998). Jointly, they suggest to adopt additional moment conditions where lagged difference of the dependent variable is orthogonal to the level form of the disturbances. The system GMM estimator is able to combine the moment conditions for the different models, as well as the level model, thereby (is capable of) generate consistent and efficient parameters. Due to the dynamic nature of the data, this study uses one-step and two-step system GMM to investigate the roles of institutions in PI.

Findings

The empirical results based on the two-step system GMM demonstrate that the quality of institutions plays an important role in stimulating PI. The finding is reinforced by the analysis of the institutional sub-components’ effects on PI.

Originality/value

This study is unique as its measurement of institutions is multi-dimensional (including law and order, rules and regulation, government stability, bureaucratic quality, control of corruption, socio-economic condition, etc.), and hence are more comprehensive. Second, it is different than the previous studies as its sample of countries includes both democracies and non-democracies, as well as both developed and non-developed economies in which policy implications are widely acceptable. Third, this study contributes to the policymakers especially those in the debt-ridden economies where governments are budget-tightening (limited capacity for public investment), as to which practical direction should be focused on so as to attract PI and eventually sustainable growth can take place.

Details

Studies in Economics and Finance, vol. 39 no. 4
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 21 July 2020

Yoon Heo, Nguyen Thi Thanh Huyen and Nguyen Khanh Doanh

This paper aims to analyze the impacts of institutional quality on trade flows of NAFTA with a panel data set of 105 countries spanning the period 2006–2017.

Abstract

Purpose

This paper aims to analyze the impacts of institutional quality on trade flows of NAFTA with a panel data set of 105 countries spanning the period 2006–2017.

Design/methodology/approach

We applied the system generalized method of moment (GMM) estimator to investigate the impacts.

Findings

The results show that institutional quality is a positive and significant determinant of international trade flows of the NAFTA bloc and its trading partners. Our results also indicate that the impact of institutional quality depends on the level of economic development of NAFTA's trading partners. Specifically, the trade elasticity of institutional quality is the highest for NAFTA’s trade with middle-income countries and the lowest for NAFTA's trade with low-income countries. In the long run, the trade elasticity of institutional quality increased significantly, with the highest increase in the case of NAFTA's trade with medium-income countries and the lowest increase in the case of NAFTA's trade with low-income countries.

Originality/value

This study contributes to the existing literature in three different ways. First, we examine the differential impact of institutions on NAFTA's trade according to the level of economic development of NAFTA's trading partners. Second, we compare the differential trade elasticity of institutional quality in the long run. Finally, we support our findings through an improved research methodology by using the system GMM estimation. This method allows us to overcome the potential sample bias, omitted variable problems and endogeneity of explanatory variables.

Details

Journal of Economic Studies, vol. 48 no. 3
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 30 August 2021

Mohammed Ayoub Ledhem and Mohammed Mekidiche

This paper aims to empirically explore the nexus between Islamic finance and economic growth across Southeast Asia based on the perception of the endogenous growth model.

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Abstract

Purpose

This paper aims to empirically explore the nexus between Islamic finance and economic growth across Southeast Asia based on the perception of the endogenous growth model.

Design/methodology/approach

This paper applied the dynamic panel one-step system GMM as an optimum estimation approach to study the influence of Islamic finance on economic growth in Southeast Asia from 2013Q4 to 2019Q4. This paper used total Islamic financing as the major exogenous explanatory factor inside the endogenous growth model, whereas the gross domestic product was used as the measurement of economic growth. The sample consisted of all complete Islamic banks operating in Southeast Asia (Malaysia, Brunei Darussalam and Indonesia).

Findings

The findings demonstrated that Islamic finance is promoting economic growth in Southeast Asia, which reflects the weighty role of Islamic finance as an energetic contributor to economic growth.

Practical implications

This paper would enrich the literature by studying the nexus between Islamic finance and economic growth in Southeast Asia based on the perception of endogenous growth model, as the results of this paper assist as an attendant for financial scholars, decision-makers and policymakers to expand Islamic finance globally as an alternative funding source for the best involvement to economic growth.

Originality/value

Despite the existing studies on the nexus between Islamic finance and economic growth, this paper is the first that explores empirically the nexus between Islamic finance and economic growth in Southeast Asia based on the theoretical background of the endogenous growth model to obtain solid information on this nexus.

Details

Journal of Islamic Accounting and Business Research, vol. 12 no. 8
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 15 January 2020

Omar Al Farooque, Wonlop Buachoom and Lan Sun

This study aims to investigate the effects of corporate board and audit committee characteristics and ownership structures on market-based financial performance of listed firms in…

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Abstract

Purpose

This study aims to investigate the effects of corporate board and audit committee characteristics and ownership structures on market-based financial performance of listed firms in Thailand.

Design/methodology/approach

It applies system GMM (generalized method of moments) as the baseline estimator approach, and ordinary least squares and fixed effects for robustness checks on a sample of 452 firms listed on the Thai Stock Exchange for the period 2000-2016.

Findings

Relying mainly on the system GMM estimator, the empirical results indicate some emerging trends in the Thai economy. Contrary to expectations for an emerging market and prior research findings, ownership structures, particularly ownership concentration and family ownership, appear to have no significant influence on market-based firm performance, while managerial ownership exerts a positive effect on performance. Moreover, as expected, board structure variables such as board independence; size; meeting and dual role; and audit committee meeting show significant explanatory power on market-based firm performance in Thai firms.

Practical implications

These findings are important for policymakers in constructing an appropriate set of governance mechanisms in an emerging market context, and for corporate entities and investors in shaping their understanding of corporate governance in the Thai institutional context.

Originality/value

Unlike previous literature on the Thai market, this study is the first to use the more advanced econometric method known as system GMM estimator for addressing causality/endogeneity issues in governance–performance relationships. The findings indicate new trends in the explanatory power of ownership structure variables on market-based firm performance in Thai-listed firms.

Details

Pacific Accounting Review, vol. 32 no. 1
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 15 January 2018

Ahmed Mohamed Dahir, Fauziah Binti Mahat and Noor Azman Bin Ali

The purpose of this paper is to examine the effects of funding liquidity risk and liquidity risk on the bank risk-taking.

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Abstract

Purpose

The purpose of this paper is to examine the effects of funding liquidity risk and liquidity risk on the bank risk-taking.

Design/methodology/approach

This study employs a system generalized method of moments (GMM) estimation technique and a sample of 57 banks operating in BRICS countries over the period from 2006 to 2015.

Findings

The results reveal that liquidity risk has a significant and negative effect on the bank risk-taking, indicating that a decrease in liquidity risk contributes to higher bank risk-taking. The study also reveals that funding liquidity risk has the substantial impact on bank risk-taking, suggesting lower funding liquidity risk results in higher bank risk-taking. These results are consistent with prior assumptions.

Research limitations/implications

The implications of this study highlight the fact that liquidity risk is a risk factor which drives the potential bank default, of which banks tend to take more risks when higher funding liquidity exists.

Practical implications

This study offers a number of valuable implications for the policy makers as well as practitioners. The policy makers should take into account better liquidity risk management framework aimed at preventing banks from taking excessive risks. Bank executives must pay more attention on how banks could hold more liquid securities and cash. Less risk-taking reduces higher borrowing costs undermining earnings through imposing taxes on corporate.

Originality/value

This work uncovered that liquidity risk per se is an important and previously unidentified risk factor, specifically its effects on bank risk-taking and contributes to the view in support of holding more liquid securities than the past.

Details

International Journal of Emerging Markets, vol. 13 no. 1
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 11 March 2021

Tianchang Zhai, Wenjin Long and Wei Si

The purpose of this study is to explain the rapid growth of urban residents' sugar consumption in China from the perspective of habit formation.

Abstract

Purpose

The purpose of this study is to explain the rapid growth of urban residents' sugar consumption in China from the perspective of habit formation.

Design/methodology/approach

Using the provincial panel data of Chinese urban households from 1995 to 2012, this study uses the two-step System Generalized Moment Method (GMM) to test the habit formation effect on residents' sugar expenditure in urban China. We also use system GMM and the recursive estimated method to explore the changes of the habit formation coefficients in different years.

Findings

We find a significant habit formation effect on overall residents' sugar expenditure and different types of sugary foods expenditure. The habit formation effect on total residents' sugar expenditure and different types of sugary foods is decreasing over the years. The patterns of the changes of the habit formation effect on different types of sugar foods are slightly different.

Research limitations/implications

Due to data limitations, we are not able to do household-level analysis and to examine the heterogeneity of the habit formation effect.

Originality/value

This is the first study that examines changes in the habit formation effect on residents' sugar expenditure in urban China. Our findings provide a reasonable explanation for the rapid growth of residents' sugar consumption in urban China. The result helps to formulate targeted policies for future interventions to control the growth of sugar consumption.

Details

China Agricultural Economic Review, vol. 13 no. 3
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 15 February 2024

Rezart Demiraj, Lasha Labadze, Suzan Dsouza, Enida Demiraj and Maya Grigolia

This paper explores the connection between capital structure and financial performance within European listed firms. The primary objective is to demonstrate an inverse U-shaped…

Abstract

Purpose

This paper explores the connection between capital structure and financial performance within European listed firms. The primary objective is to demonstrate an inverse U-shaped relationship between these two variables and pinpoint an optimal debt-equity mix.

Design/methodology/approach

In this study, we adopt a dynamic modeling approach to investigate the relationship between a firm’s capital structure and financial performance. Drawing on well-established theories and prior empirical studies, our model examines 3,121 dividend-paying firms from 41 European countries over 14 years, from 2008 to 2021. To enhance the reliability of our findings, we employ two distinct estimation techniques: the fixed effect model (FE) and the system generalized method of moments (System-GMM).

Findings

This study reveals an inverse U-shaped relationship between the firm’s financial performance, measured by the return on equity (ROE) and its capital structure (total liability to total assets ratio). Furthermore, an optimal capital structure of about 29% is determined for all firms in the sample, and about 21%, 28% and 41% industry-specific capital structure for manufacturing, real estate and wholesale trade, respectively.

Originality/value

This paper contributes to existing knowledge by empirically determining an optimal capital structure for listed firms across various industries in Europe, which very few studies have attempted to do in the past. An optimal capital structure is an invaluable benchmark for managers and other stakeholders, informing their decision-making.

Details

EuroMed Journal of Business, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1450-2194

Keywords

Book part
Publication date: 19 June 2019

Woon Leong Lin, Murali Sambasivan, Jo Ann Ho and Siong Hook Law

Although various studies have investigated the corporate political activity (CPA), however, there is no definite report which shows its effect on the public policy outcome or the…

Abstract

Although various studies have investigated the corporate political activity (CPA), however, there is no definite report which shows its effect on the public policy outcome or the organization’s performance. Hence, the political effects of the corporate social responsibility (CSR) have garnered a lot of recent interest since the CSR included activities which have an intended or an unintended effect on the CPA–corporate financial performance (CFP) link. We use data made available by the 1995 Lobbying Disclosure Act, while the CSR indices were gathered from the Fortune Magazine’s most admired companies from 2007 to 2016. We analyzed the relationship between the organization’s CPA and CFP, with the help of the dynamic panel data system generalized method of moment (GMM) estimation. Their results showed that the CPA did not improve the firm’s performance. Moreover, CPA and CSR are substitute in affecting financial performance, because they are essentially exclusive investments that require resources but do not have synergies.

Details

Asia-Pacific Contemporary Finance and Development
Type: Book
ISBN: 978-1-78973-273-3

Keywords

Article
Publication date: 30 May 2023

Müzeyyen Merve Şeri̇foğlu and Pelin Öge Güney

This paper investigates the two-way relationship between foreign direct investment (FDI) inflows and higher education across 36 Organisation for Economic Co-operation and…

Abstract

Purpose

This paper investigates the two-way relationship between foreign direct investment (FDI) inflows and higher education across 36 Organisation for Economic Co-operation and Development (OECD) countries for 1998–2019 periods. To demonstrate this relationship, the authors take into account the total number of graduates as well as the number of graduates from different fields. Accordingly, the authors gathered graduates in four groups which are education, social sciences, technical sciences (tech) and health. In addition to investigating two-way relationship between FDI and graduates, the authors also examined the contribution of primary and secondary level education to FDI.

Design/methodology/approach

The authors use two models to investigate the bidirectional relationship between FDI inflows and graduates from four fields. In the first model, the dependent variable is FDI inflows, and in the second model, graduates from each field are the dependent variable. To investigate the dual relationship, the authors employ ordinary least squares (OLS) and two-step system generalized method of moments (GMM) developed by Arellano Bover (1995) and Blundell Bond (1998).

Findings

For the first model, the results show that secondary level and higher education have a positive impact on FDI. In terms of graduates by fields, it is seen that education and health graduates contributed the most to FDI. For the second model in which the authors analysed the effect of FDI on total graduates and graduates from different fields, the authors find that FDI positively affects the number of graduates from all fields, and the strongest effect is on graduates from the social science field.

Practical implications

Based on the results, the authors can say that well-educated people promote FDI inflows to OECD countries, and FDI is also a driving force in raising highly educated people. So, the authors think that the results will help design higher education policies in accordance with FDI and higher education connection.

Originality/value

To the best of the authors’ knowledge, this paper is the first to examine the impact of FDI inflows on graduates by fields and also to investigate the impact of graduates by fields on FDI.

Details

International Journal of Manpower, vol. 44 no. 8
Type: Research Article
ISSN: 0143-7720

Keywords

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