In Search for a Robust Method for Estimating Dynamic Panel Data Models of Capital Structure

Research on dynamic capital structure basically wants to know the existence of targeted leverage as hypothesized by Trade-Off Theory and Speed off Adjustment (SOA). Later developments, the magnitude of the speed of adjustment can be used as a determinant of capital structure theory used by the company. Another problem in dynamic capital structure research is the use of analytical tools that can produce biased and inconsistent predictors. To overcome this, this study uses dynamic panel data with the General Method of Moment (GMM) approach. Samples were taken from non-financial companies listed on the Indonesia Stock Exchange in the 2009-2015 period. The results of the inference show the existence of Dynamic Trade Off Theory and the variables of company characteristics and macroeconomic significantly influence the dynamic capital structure. In addition, it is known that there is an influence of company size and growth Opportunity on the speed of adjustment. Another finding is that he knows that managing profitability follows and Pecking Order Theory.Keywords : capital structure, static model, dynamic model

Traditional corporate finance theory holds that people are entirely rational. However, psychological research shows that people are not wholly rational, which means that when people make decisions, their beliefs and preferences usually produce systematic biases manifested by behavioral characteristics such as overconfidence and loss avoidance. Therefore, managers' behaviors can be influenced to some extent by their psychological characteristics, implying that managers are not entirely rational. Thus, the main purpose of this study is to examine the relationship between managers' overconfidence and corporate cash holding decisions in Chinese listed companies. This study also investigated the influence of market product competition on the relationship between managers' overconfidence and corporate cash-holding decisions. This study used the data of the A-share listed companies in Shanghai and Shenzhen Stock Exchange from 2010-2022 as the sample and applied FEM and Generalized Method of Moments (GMM) for analyzing the data. The empirical results show that managers’ overconfidence have the positive correlation with cash holding. Therefore, managers tend to hold more cash for internal financing. However, this positive relationship can be alleviated by product market competition. This study will assist enterprises in developing a comprehensive and effective enterprise cash-holding plan to assist companies in making scientific cash-holding decisions.

An optimal capital structure is the fundamental premise of dynamic trade-off theory. However, firms deviate from the optimal level and display adjustment behaviour. This mechanism is referred to as the speed of adjustment towards the point of optimality and implies an examination of the convergence process towards the optimal level. One of the key issues in manufacturing companies is their leverage ratios (Mukherjee and Mahakud, 2012); hence, we aim to investigate the capital structure dynamics of manufacturing firms in India. Included in this investigation is a sample of 55 Indian manufacturing firms listed on the NSE200 from 2009 to 2016. Based on the dynamic panel data model with system generalised method of moments (GMM) estimation, our findings indicate an adjustment speed for the sample firms of around 25%, with a half-life of nearly 2.4 years.

Despite growing interest in corporate social responsibility (CSR), limited research has evaluated how cash holdings shape firms’ financing decisions. The objective of this study is to explore the effect of CSR on financing decisions with the moderating role of cash holdings. The study utilizes a sample of 522 listed non-financial firms across South Asian countries (i.e., Pakistan, Bangladesh, India, and Sri Lanka) covering the period 2010 to 2024. For data analysis, the study uses a fixed effects model as the primary approach, whereas feasible general least squares (FGLS) and generalized method of moments (GMM) estimations are utilized for robustness checks. The findings indicate that CSR activities have a significant and positive impact on financing decisions. Cash holdings are significantly and negatively associated with external debt financing. However, the results show that with greater availability of cash holdings, firms significantly reduce their reliance on external financing to perform CSR activities. These findings provide valuable insights for policymakers to support frameworks that balance CSR goals and debt financing for financial stability, while considering the role of internal funds.

The emergence of global order in complex systems with locally interacting components is most striking at criticality, where small changes in control parameters result in a sudden global reorganization. We study the thermodynamic efficiency of interactions in self-organizing systems, which quantifies the change in the system’s order per unit of work carried out on (or extracted from) the system. We analytically derive the thermodynamic efficiency of interactions for the case of quasi-static variations of control parameters in the exactly solvable Curie–Weiss (fully connected) Ising model, and demonstrate that this quantity diverges at the critical point of a second-order phase transition. This divergence is shown for quasi-static perturbations in both control parameters—the external field and the coupling strength. Our analysis formalizes an intuitive understanding of thermodynamic efficiency across diverse self-organizing dynamics in physical, biological, and social domains.

Corporate bankruptcy risk in China is increasingly driven by structural credit discrimination and a systemic financial mismatch. This study investigates the impact of cash holdings and financial constraints on corporate bankruptcy risk in China. We employ the Two-step system Generalized Method of Moments (GMM) to analyze an unbalanced panel of 32,081 annual observations from listed firms in China, spanning the period from 2010 to 2023. Our findings indicate that higher financial constraints increase bankruptcy risk, as a one-point rise in the SA index reduces the Z-score by 4.26 points, supporting Market Timing Theory. Conversely, cash holdings serve as a powerful protective buffer; a 1% increase in cash holdings raises the Z-score by 0.37 points, supporting the Precautionary Savings and Trade-off theories. Furthermore, our results highlight the buffer role of cash holdings for financially constrained firms, where higher cash reserves mitigate the adverse effects of financial constraints on bankruptcy risk. Our main findings remain robust after employing alternative bankruptcy risk proxies, firm size-based, and exchange subsamples. These findings provide valuable insights for financial managers and policymakers, highlighting the importance of effective liquidity management and credit accessibility in mitigating corporate distress in emerging markets.

Corporate cash holdings in emerging markets

The effects of serially correlated residuals on the accuracy of linear regression are considered, and remedies are suggested. The Cochrane‐Orcutt method specifically remedies the effects of serially correlated residuals and yields more accurate regression coefficients than does ordinary least squares. We illustrate the effects of serially correlated residuals, explain the application of the CO method, and evaluate the gains to be achieved in its use. We apply the method to an example from climate reconstruction, and we show that the effects of serial correlation in residuals are present and show the significantly improved result.

A Supplementary Mimeo to the Paper Titled 'The Adjustment of the Yule-Walker Relations in VAR Modeling: The Impact of the Euro on the Hong Kong Stock Market'

This paper examines the determinants of foreign direct investment (FDI) for the Eastern Region of China as a whole by excluding the two lesser jurisdictions and concentrating on the Big Five jurisdictions from 1993 to 2005. Robust estimates and a better understanding of FDI in Eastern China are obtained by employing robust Ordinary Least Squares (OLS), the randomeffect model, and the fixed-effect model separately on each case. Without any outliers and serial correlation in residuals, the Big Five case gives us the most reliable estimates of determinants of FDI in Eastern China. Market size and labor quality are found to have a positive, significant, and quantitatively large effect on FDI in Eastern China, whereas education and infrastructure have a statistically nonsignificant positive direct effect on FDI. As for the level of local physical investment, we found a small crowding-out effect on FDI in the Big Five case.

SUMMARY In order to test for serial correlation in residuals for static time series regression in the presence of missing data, the score principle is applied both to the likelihood conditional on the observation times, and to an unconditional form of likelihood. Asymptotic distributions of the test statistics are established, under both the null hypothesis of no serial correlation, and sequences of local, correlated, alternatives, enabling analytic comparison of efficiency.

Multinationality and capital structure dynamics: A corporate governance explanation

This paper focuses on the estimation of fiscal response functions for advanced economies and on the performance of alternative specifications of the Generalized Method of Moments (GMM) estimator for the rule’s parameters. We first estimate the parameters on simulated data through Monte Carlo experiments; we then run an empirical test on data for the European Monetary Union (EMU). We estimate both the Cyclicallyadjusted primary balance (CAPB) and the Primary balance (PB) models, and check the robustness of the estimates to different specifications of the GMM estimator and to alternative settings of the parameters. We also compare alternative instrument reduction strategies in a context where several endogenous variables enter the model. We find that the system GMM estimator is the best-performing in this framework and the high instrument count comes out not to be problematic. We also make the algebraic links between the parameters in the CAPB and in the PB models explicit, suggesting an effective strategy to estimate the discretionary fiscal response from the coefficients of the PB model. In the empirical application on a dataset for EMU Countries, we find that the evidence of a-cyclicality of discretionary policies is robust to all the specifications of the GMM estimator.

Fully modified IV, GIVE and GMM estimation with possibly non-stationary regressors and instruments

The healthcare sector in Indonesia faces challenges in managing capital efficiency and organizational performance due to high operational costs and the need for continuous investment in health technology and infrastructure. As a key driver of economic growth, especially post-COVID-19, optimal capital management is crucial for sustaining operations and creating stakeholder value. This study examines the relationship between the Weighted Average Cost of Capital (WACC) and Return on Assets (ROA) in Indonesia’s healthcare sector using a quantitative dynamic panel analysis approach. Financial data from healthcare companies listed on the Indonesia Stock Exchange were analyzed using the Generalized Method of Moments (GMM). The findings indicate that WACC negatively affects ROA, but the relationship is not statistically significant. Leverage, measured through the Debt to Asset Ratio and Debt to Equity Ratio, strengthens this relationship positively. Meanwhile, cash holdings and firm size have a negative moderating effect, whereas Net Working Capital (NWC) reinforces the relationship positively. These results highlight the importance of effective debt and liquidity management in optimizing profitability in the healthcare sector. The study contributes theoretically to capital efficiency discussions and offers practical insights for industry stakeholders, including decision-makers and investors. The research is novel in its focus on Indonesia’s healthcare sector, making it highly relevant for financial and strategic planning in the industry.