Is neglected heterogeneity really an issue in binary and fractional regression models? A simulation exercise for logit, probit and loglog models

In this paper we examine theoretically and by simulation whether or not unobserved heterogeneity independent of the included regressors is really an issue in logit, probit and loglog models with both binary and fractional data. We found that unobserved heterogeneity: (i) produces an attenuation bias in the estimation of regression coefficients; (ii) is innocuous for logit estimation of average sample partial effects, while in the probit and loglog cases there may be important biases in the estimation of those quantities; (iii) has much more destructive effects over the estimation of population partial effects; (iv) only for logit models does not affect substantially the prediction of outcomes; and (v) is innocuous for the size and consistency of Wald tests for the significance of observed regressors but, in small samples, reduces their power substantially.Binary models; fractional models; neglected heterogeneity; partial effects; prediction; wald tests.

Nonparametric models of financial leverage decisions

This paper investigates the properties of nonparametric decision tree models in the analysis of financial leverage decisions. This approach presents two appealing features: the relationship between leverage ratios and the explanatory variables is not predetermined but is derived according to information provided by the data, and the models respect the bounded and fractional nature of leverage ratios. The analysis shows that tree models suggest relationships between explanatory variables and the relative amount of issued debt that parametric models fail to capture. Furthermore, the significant relationships found by tree models are in most cases in accordance with the effects predicted by the pecking-order theory. The results also show that two-part tree models can accommodate better the distinct effects of explanatory variables on the decision to issue debt and on the amount of debt issued by firms that do resort to debt.Capital structure, Fractional regression, Decision trees, Two-part models

Moment-based estimation of nonlinear regression models with boundary outcomes and endogeneity, with applications to nonnegative and fractional responses

In this article, we suggest simple moment-based estimators to deal with unobserved heterogeneity in a special class of nonlinear regression models that includes as main particular cases exponential models for nonnegative responses and logit and complementary loglog models for fractional responses. The proposed estimators: (i) treat observed and omitted covariates in a similar manner; (ii) can deal with boundary outcomes; (iii) accommodate endogenous explanatory variables without requiring knowledge on the reduced form model, although such information may be easily incorporated in the estimation process; (iv) do not require distributional assumptions on the unobservables, a conditional mean assumption being enough forconsistentestimationofthestructuralparameters;and(v)undertheadditionalassumption that the dependence between observables and unobservables is restricted to the conditional mean, produce consistent estimators of partial effects conditional only on observables.info:eu-repo/semantics/publishedVersio

Asymptotic bias for GMM and GEL estimators with estimated nuisance parameters

This papers studies and compares the asymptotic bias of GMM and generalized empirical likelihood (GEL) estimators in the presence of estimated nuisance parameters. We consider cases in which the nuisance parameter is estimated from independent and identical samples. A simulation experiment is conducted for covariance structure models. Empirical likelihood offers much reduced mean and median bias, root mean squared error and mean absolute error, as compared with two-step GMM and other GEL methods. Both analytical and bootstrap bias-adjusted two-step GMM estimators are compared. Analytical bias-adjustment appears to be a serious competitor to bootstrap methods in terms of finite sample bias, root mean squared error and mean absolute error. Finite sample variance seems to be little affected.

Combining micro and macro data in hedonic price indexes

This paper proposes arithmetic and geometric Paasche quality-adjusted price indexes that combine micro data from the base period with macro data on the averages of asset prices and characteristics at the index period. The suggested indexes have two types of advantages relative to traditional Paasche indexes: (i) simplification and cost reduction of data acquisition and manipulation; and (ii) potentially greater efficiency and robustness to sampling problems. A Monte Carlo simulation study and an empirical application concerning the housing market illustrate some of those advantages.info:eu-repo/semantics/publishedVersio

How to measure banking regulation and supervision

This paper uses data from 141 countries to identify the variables that best characterize worldwide banking regulation and supervision practices. We apply a nonlinear principal components analysis with optimal variable transformation to deal with the variables’ mixed measurement levels and reduce data dimensionality. The robustness of the results is tested for different subsamples. The findings indicate that deposit insurance, liquidity, diversification requirements, complementary banking activities, and market discipline are the most reliable indicators to measure regulation. In contrast, resolution activities, the mandate of the head of the supervisory agency, and the report of prudential regulation infractions assume the same role for banking supervision. Capital requirements and ownership are of minor relevance and are sensitive to a country’s development level. China and Germany display the most distinct regulation practices, while China and the UK adopt the most stringent policies regarding supervision.info:eu-repo/semantics/publishedVersio

Capital structure speed of adjustment heterogeneity across zero leverage and leveraged European firms

This paper investigates whether leveraged and zero-leverage firms pursue or not a debt target level and, if so, how fast they adjust to that target. We also investigate how the influence of firms’ debt policy on capital structure speed of adjustment (SOA) changes with different financial systems, macroeconomic conditions, financial constraints and financial flexibility levels. Using the dynamic panel fractional estimator and a sample of European listed firms for the 1995–2016 period, we find that both zero-leverage and leveraged firms actively adjust to a target debt ratio. We also find that, in general, leveraged firms display a significantly higher SOA than zero-leverage firms (27.6 % vs. 22.1 %), with only two exceptions: there are no significant differences when the analysis is restricted to financially constrained firms; and during the 2008 financial crisis zero-leverage firms adjusted significantly faster (46.8 %) than leveraged firms (25.6 %) and relative to non-crisis years (21.6 %).info:eu-repo/semantics/publishedVersio

The main determinants of banking crises in OECD countries

Banks’ stability can be affected by economic fluctuations, banks’ risk-taking behavior, connections among banks and countries’ financial system structure. At the same time, banking regulation and supervision were designed to protect banks from failure, but a large number of banking crises were not prevented recently. Using binary response models for panel data and focusing on OECD countries, this paper studies the main determinants of banking crises over a period of 21 years. Results suggest a bank’s high debt and a country’s low GDP growth rate as the major determinants of banking crises. There is also evidence of contagion across countries from the same geographical region and from G7 to other countries, and that bank-based financial systems are less prone to borderline banking crises. Regulatory and supervision practices are found not to have been relevant in bankruptcy prevention.info:eu-repo/semantics/acceptedVersio

The impact of family ownership on capital structure of firms: exploring the role of zero-leverage, size, location and the global financial crisis

In this article, we investigate the influence of family ownership on firm leverage across different subgroups of family and non-family firms. In addition, we examine the influence of firm size, geographical location and the 2008 global financial crisis on the capital structure of family firms. In both cases, we study the probability of firms using debt and, conditional on its use, the proportion of debt issued. We find that family ownership affects both decisions positively, namely, when the firm is large or located in a metropolitan area. For small firms located outside metropolitan areas, there is no clear family ownership effect. We also find the 2008 crisis had a substantial, but diversified, impact on family firm leverage. On the one hand, all family firms were more prone to use debt after 2008; on the other, the proportion of debt held by levered family firms decreased for micro and small firms, but increased for large firms. Overall, the crisis effects on family firm leverage seem to be the result of both supply- and demand-side factors, with the former particularly affecting the availability of debt to micro and small firms.info:eu-repo/semantics/acceptedVersio

About the efficiency behavior of the Portuguese manufacturing firms during the financial crisis

This work studies some effects of the World Financial Crisis on firms in terms of efficiency scores, by measuring how 23K units used inputs and produced outputs, obtained from a set of Portuguese manufacturing firms on three time periods: pre-crisis (2006-2008), pretroika (2009-2011) and troika (2012-2013). We adopt a non-parametric approach, which combines Multidirectional Efficiency Analysis (MEA) with other techniques as cluster analysis, principal component analysis and dimensionality testing, to examine three empirical hypotheses: H(1) the performance of the portuguese firms in the manufacturing sector has been adversely affected by the financial crisis felt in Portugal in the troika years; H(2) due to the financial crisis, the manufacturing sector acquired long-term debt deliberately; and H(3) the financial crisis has affected substantially the food subsector. The results indicate that H(1) is confirmed, but not totally, H(2) is confirmed and H(3) is rejected. We also found surprisingly good affine fittings between inputs and capital, and outputs and EBIT with really good p-values. Hence, we also propose a reduction of the dimensionality of the MEA model, when it is possible to apply model fitting. If the reduction results in one input and one output, we give procedures to visualize and compare between efficiencies scores.info:eu-repo/semantics/publishedVersio