Impact of capital structure on firm''''s performance evidence from Vietnamese listed companies

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY  NGUYỄN THỊ HỒNG LOAN IMPACT OF CAPITAL STRUCTURE ON FIRM’S PERFORMANCE EVIDENCE FROM VIETNAMESE LISTED COMPANIES Subject: Master of Business Administration Code: 60.34.01.02 MASTER THESIS OF BUSINESS ADMINISTRATION SUPERVISOR: PGS.TS PHẠM THỊ THU TRÀ TPHCM - 2012 Abstract: Although over the last decades many studies have been conducted to examine the impact of Capital Structure on Firm’s Performance, but the report results are mixed and the question of capital structure’s impact on performance still holds well and empirical study continues, especially in an emergency market like Vietnam where the financial imbalance occurs in almost business To answer this question, this study examines the impact of capital structure on corporate performance in Ho Chi Minh stock exchange, in which we control the effect of firm’s size, firm’s age, industrial sectors and ownership in the period 2007-2011 At first the research results show that Vietnamese firms are using an unbalance financial leverage with a big amount of debt while state controlled use more debt than non state controlled firm and heavy industry uses more debt than light industry and the difference is significant These results are consistent with theories An unbalanced panel of 97 companies are studied in this paper and report that a firm’s capital structure was found to have a significant and negative impact on the firm’s performance measures in the accounting measures and negative but insignificant in the market measure – Tobin’s Q Therefore, it is recommended that Vietnamese firms can reduce their debt ratio in order to increase profitability Control variables: Firm’s age, size, industrial, ownership show mixed results of relationship with firm’s performance, it may significant or not but with the same trend as the theories Key works: Capital structure, Debt Ratio, Firm’s performance, ROE, ROA, Tobin’s Q, Gross Profit Margin, Firm’s Age, Firm’s Size, Owner-ship, Different Industries Statement of original authorship I declare that this research project is my own work It is submitted in partial fulfillment of the requirements for the degree of Master of Business at Institute School of Business, University of Economics It has not been submitted before for any degree or examination in any other University I further declare that I have obtained the necessary authorization and consent to carry out this research Acknowledgments First and most importantly, I would like to thank my family especially my beloved husband for their love, support and patience from the beginning of the course to the end I could not have made it without them Secondly I would like to express my all respects and appreciation to Ms Pham Thi Thu Tra my supervisor for her invaluable support, advice and instructions Having her as a supervisor greatly assisted in getting to this research done I would also like to thank Mr Nguyen Dinh Tho, who exerts every effort in guiding me as well as ISB students to implement research I would like to thank all my colleagues in VCSC, for supporting me in getting data for the research I also thank to my ISB classmate, for their kindly support and assistance during this last year Last but not least, I would thank management, the faculty and all the staff at ISB for what they have done to support me as well as my classmate during the course Ho Chi Minh City, January 1st, 2013 Nguyen Thi Hong Loan Table of Contents Abstract: Statement of original authorship Acknowledgments List of tables List of Figures: Abbreviations Introduction: 1.1 Research Background: 1.2 Research objective 10 1.3 Research questions: 10 1.4 Outline of the report 10 Literature review 11 2.1 Vietnam Economic overview: 11 2.2 Theory about Capital structure and Firm’s Performance 13 2.2.1 Modigliani and Miller’s theory: 13 2.2.2 Trade-off theory 13 2.2.3 Pecking order theory 14 2.2.4 The information asymmetry and signaling theory: 15 2.3 The impact of firm’s characteristics: 16 2.3.1 Firm’s Age 16 2.3.2 Firm Size 17 2.3.3 Ownership 17 2.3.4 Different industrial sectors 18 2.4 Empirical evidences 19 2.5 Hypotheses development: 21 Research methodology 21 3.1 Data collection: 21 3.2 Variable of research: 22 4 3.2.1 Capital Structure (Independence Variable) 22 3.2.2 Firm’s performance (Dependence variable) 22 3.2.3 Control variable: 24 3.3 Regression Method 24 3.4 Model of study: 25 3.5 Conceptual framework: 26 Results and Discussions 27 4.1 Descriptive Statistics 27 4.2 Regression 32 Conclusions: 34 5.1 Conclusions: 34 5.2 Implication 35 5.3 Limitations and recommendations 35 Bibliography 37 Appendix 40 Appendix A: Final sample selection 40 Appendix B: DR - GPM regression analysis result 45 Appendix C: DR - ROE regression analysis result 47 Appendix D: DR - ROA regression analysis result 49 Appendix E: DR - Tobin’s Q regression analysis result 51 List of tables Table 1: Summary statistics of the explanatory Variables, 2007-2011 27 Table 2: Correlation Matrix of the Explanatory Variables, during 2007-2011 30 Table 3: Correlation Matrix of the Explanatory Variables of Heavy industry during 20072011 30 Table 4: Correlation Matrix of the Explanatory Variables of Light industry during 20072011 30 Table 5: Correlation Matrix of the Explanatory Variables of state- controlled Company during 2007-2011 31 Table 6: Correlation Matrix of the Explanatory Variables of non state-controlled Company during 2007-2011 31 Table 7: Impact of Capital structure on manufacturing firm’s performance 32 List of Figures: Figure 1: Total debt to asset in different industrial factor 12 Figure 2: The explanatory variable of time, 2007-2009 29 Abbreviations GPM: Gross Profit Margin ROE: Return on Equity ROA: Return on Assets EPS: Earning per Share DR: Debt ratio HSX: Hochiminh Stock Exchange HNX: Hanoi stock Exchange RE: Random-effects model FE: Fixed-effects model SMEs: Small and medium-size enterprises 1.1 Introduction: Research Background: Capital structure decisions play a pivotal role in maximizing the performance of firm and its valve Capital structure involves the decision about the combination of the various source of funds, a firm uses to finance its operations and capital investments These sources include the use of long term debt finance, short term debt finance called debt financing, preferred stock and common stock also called equity financing Modigliani and Miller (1958) were the first authors who developed capital structure theory which suggest that in the perfect capital market financing strategies not affect the value of the firm, but later they argue that firm value can be increased by changing the capital structure because of tax advantage of debts (Modigliani and Miller, 1963) In recent decades the capital structure has become one of the most interesting issues in the corporate finance literature Since then, many researcher followed Modigliani and Miller’s path to develop new theory on debt policy of firms However, these attentions led to develop two main capital structure theories: the static trade-off theory and the pecking-order theory According to the static trade-off theory, an optimal capital structure exists for firm that can be reached by conducting a balance between benefits (interest tax shields) and the cost of financial distress (bankruptcy and agency costs) of debts (Myers and Majluf, 1984) Rajan and Zingales, 1995; Wald, 1999; Shyam-Sunder and Myers, 1999; Booth et al., 2001; Fama and French, 2002; Huang and Song, 2006; Tang and Jang, 2007; Karadeniz et al., 2009 and Chakraborty, 2010) Using this optimal capital structure, the value of the firm could be increased due to its lowest cost of capital (Tang and Jang, 2007; Karadeniz et al., 2009) Myers and Majluf (1984) developed the pecking order theory as an alternative to the static trade-off theory Pecking order theory, in contrast to static trade-off theory, assumes that there is no an optimal capital structure for a firm According to this theory, since there is an asymmetric information between managers and investors, therefore to minimize this asymmetric information firms prefer to finance using retained earnings, debt and equity respectively (Myers, 1984; Myers and Majluf, 1984; Rajan and Zingales, 1995; Wald, 1999; Booth et al., 2001; Fama and French, 2002; Huang and Song, 2006; Tang and Jang, 2007; Karadeniz et al., 2009; Chakraborty, 2010) Although over the last decades many studies have been conducted to examine the superiority of pecking order theory compare to static trade-off theory, but the reported results are controversial Fama and French (2002) revealed that none of these theories would be rejected Furthermore, Myers (2003) argues that the efficiency of capital structure theories is based on conditions which are different from one firm to another (Huang and Song, 2006) The theories show that the use of financial leverage to grow faster, bringing in higher profits for shareholders is required However, in Vietnam, the financial imbalance occurs in a lot of business in the past years, when the economy fell into difficulties As Son (2012) said, the debt-to-equity ratio of local firms is as much as 120%, versus the regional average of 45% This is an alarming figure; a ratio of over 60% already poses risk of bankruptcy if the market developments are unfavorable The question is whether the increase of debt influences the financial performance of the business? As my knowledge, only several such studies have dealt in Vietnam Of these, San (2002) focused on a single industry sector (tourism) in a single locality (ThuaThien Hue Province), whilst Nguyen and Ramachandran (2006) focused on small and medium-size enterprises (SMEs) only By contrast, Vu (2003) analyzed companies listed the main stock exchange Although they are far less numerous than unlisted companies (most of the latter are SMEs), listed companies account for a larger share of economic activity Therefore, it is important to explore the relationship between capital structure and firm performance in Vietnamese market Appendix Appendix A: Final sample selection NO TICKER COMPANY NAME INDUSTRY HAP Paper LAF SAM BBC AGF TS4 KDC TYA VNM 10 ABT 11 BHS Hapaco Group Joint Stock Company Long An Food Processing Export Joint Stock Company Sacom Development and Investment Corporation Bibica Corporation Angiang Fisheries Import & Export Joint Stock Company Seafood Joint Stock Company No4 Kinh Do Corporation Taya (Vietnam) Electric Wire And Cable Joint Stock Company Viet Nam Dairy Products Joint Stock Company Bentre Aquaproduct Import And Export Joint Stock Company Bien Hoa Sugar Joint Stock Company 12 BMP Binh Minh Plastics Joint Stock Company 13 CLC Cat Loi Joint Stock Company 14 CYC Chang Yih Ceramic Joint Stock Company 15 DCT 16 17 DHG DMC Dong Nai Roofsheet And Construction Material Joint Stock Company DHG Pharmaceutical Joint Stock Company Domesco Medical Import Export Joint Stock Food Products LISTED ESTABLISH YEAR YEAR 2000 1999 2000 1985 2000 1998 2001 1990 Farming & Fishing 2002 1985 Farming & Fishing Food Products Telecommunications Equipment Food Products 2002 2005 1993 1993 2005 1992 2005 2003 Farming & Fishing 2006 1977 Food Products Building Materials & Fixtures Tobacco Building Materials & Fixtures Building Materials & Fixtures Pharmaceuticals Pharmaceuticals 2006 1969 2006 1977 2006 1992 2006 2000 2006 1966 2006 2006 1974 1985 Telecommunications Equipmen Food Products 40 Corporation Danang Rubber Joint Stock Company Do Thanh Technology Corporation Sao Ta Foods Joint Stock Company Sai Gon Garment Manufacturing Trade Joint Stock Company Interfood Shareholding Company Imexpharm Corporation Lam Dong Mineral and Building Material Joint Stock Company 18 19 20 DRC DTT FMC 21 GMC 22 23 IFS IMP 24 LBM 25 NAV 26 PAC 27 RAL 28 SCD 29 TAC Dry Cell and Storage Battery Joint Stock Company Rangdong Light Source and Vacuum Flask Joint Stock Company Chuong Duong Beverages Joint Stock Company Tuong An Vegetable Oil Joint Stock Company 30 TCR Taicera Enterprise Company 31 TTP 32 33 34 35 36 VIS VPK VTB ACL ANV 37 DPM 38 FBT Nam Viet Joint Stock Company Tan Tien Plastic Packaging Joint Stock Company Viet Nam – Italy Steel Joint Stock Company Vegetable Oil Packing Joint Stock Company Viettronics Tan Binh Joint Stock Company Cuu Long Fish Joint Stock Company Nam Viet corporation Petrovietnam Fertilizer And Chemicals Corporation BenTre Forestry and Aquaproduct Import Tires Specialty Chemicals Farming & Fishing 2006 2006 2006 1993 1994 1996 Clothing & Accessories 2006 1993 Food Products Pharmaceuticals Building Materials & Fixtures Building Materials & Fixtures Electrical Components & Equipment Electrical Components & Equipment 2006 2006 1991 1983 2006 1994 2006 1963 2006 1976 2006 1961 Soft Drinks 2006 1952 Food Products Building Materials & Fixtures 2006 1975 2006 1994 Containers & Packaging 2006 1966 Steel Containers & Packaging Consumer Electronics Farming & Fishing Farming & Fishing 2006 2006 2006 2007 2007 2003 2006 1973 2003 1993 Specialty Chemicals 2007 2004 Farming & Fishing 2007 1994 41 Export Joint Stock Company Thuan An Wood Processing Joint Stock Company Hoa Phat Group Joint Stock Company General Materials Biochemistry Fertilizer Joint Stock Company 39 GTA 40 HPG 41 HSI 42 HT1 Ha Tien Cement Joint Stock Company 43 44 45 46 ICF L10 LSS MPC 47 TCM 48 49 TPC VHC 50 DCL Investment Commerce Fisheries Corporation Lilama 10 Joint Stock Company Lam Son Sugar Joint Stock Corporation Minh Phu Seafood Group Corporation Thanh Cong Textile Garment Investment Trading Joint Stock Company Tan Dai Hung Plastic Joint Stock Company Vinh Hoan Corporation Cuu Long Pharmaceutical Joint Stock Corporation 51 DQC Dien Quang Joint Stock Company 52 53 54 55 56 57 58 HLA HSG KMR OPC SBT TRA TTF Huu Lien Asia Corporation Hoa sen Group Mirae Joint Stock Company OPC Pharmaceutical Joint-Stock Company Société De Bourbon Tay Ninh Traphaco Joint Stock Company Truong Thanh Furniture Corporation 59 VHG Viet - Han Corporation 60 61 AAM AGD Mekong Fisheries Joint Stock Company Godaco Seafood Joint Stock Company Furnishings 2007 2001 Steel 2007 1992 Specialty Chemicals 2007 2003 2007 1964 2007 2007 2007 2007 1999 1960 1986 1992 Clothing & Accessories 2007 1976 Containers & Packaging Farming & Fishing 2007 2007 1984 1997 Pharmaceuticals 2008 1976 2008 1979 2008 2008 2008 2008 2008 2008 2008 1978 2001 2001 1977 1995 1972 2000 2008 2003 2009 2009 1979 1998 Building Materials & Fixtures Farming & Fishing Heavy Construction Food Products Farming & Fishing Electrical Components & Equipment Steel Steel Clothing & Accessories Pharmaceuticals Food Products Pharmaceuticals Furnishings Telecommunications Equipment Food Products Food Products 42 62 ATA NTACO Co The Southern Rubber Industry Joint Stock Company Duc Thanh Wood Processing Joint Stock Company Hung Vuong Corporation Lix Detergent Joint Stock Company Phuc Tien Trade Manufacture Joint Stock Company RangDong Plastic Joint-Stock Company Gia Lai Cane Sugar Thermoelectricity Joint Stock Company Son Ha International Corporation Sao Vang Rubber Joint Stock Company Viet Nam Fumigation Joint Stock Company Anvifish Joint Stock Company Ca Mau Frozen Seafood Processing Import Export Corporation 63 CSM 64 GDT 65 66 HVG LIX 67 PHT 68 RDP 69 SEC 70 71 72 73 SHI SRC VFG AVF 74 CMX 75 CTI Cuongthuan Investment Corporation 76 DAG Dong A Plastic Group Joint – Stock Company 77 78 79 80 DLG DTL EVE HAI Duc Long Gia Lai Group Joint Stock Company Dai Thien Loc Corporation Everpia VietNam Joint Stock Company H.A.I Joint Stock Company 81 HVX Vicem Hai Van Cement Joint Stock Company 82 83 84 LM8 NHS NHW Lilama 18 Joint Stock Company Ninh Hoa Sugar Joint Stock Company Ngo Han Joint Stock Company Food Products 2009 2000 Tires 2009 1976 Furnishings 2009 1991 Food Products CONSUMER 2009 2009 2003 1972 Steel 2009 2000 Containers & Packaging 2009 1960 Food Products 2009 1997 Steel TIRES Specialty Chemicals Food Products 2009 2009 2009 2010 1998 1956 1999 2004 Food Products 2010 1977 2010 2000 2010 2001 2010 2010 2010 2010 1985 2001 1993 1986 2010 1990 2010 2010 2010 1977 1996 1988 Building Materials & Fixtures Building Materials & Fixtures Furnishings Steel CONSUMER Specialty Chemicals Building Materials & Fixtures Industrial Machinery Food Products Telecommunications 43 85 86 87 88 POM SPM TLG TMT 89 VLF 90 91 VNH VTF Pomina Steel Corporation S.P.M Corporation Thien Long Group Corporation TMT Automobile Joint Stock Company Vinh Long Cereal And Food Import Export Company Viet Nhat Seafood Corporation Viet Thang Feed Joint Stock Company 92 BRC BenThanh Rubber Joint Stock Company 93 IDI 94 JVC 95 96 NKG VCF International Development & Investment Corporation Japan Vietnam Medical Instrument Joint Stock Company Nam Kim Steel Joint Stock Company Vinacafé Biên Hoa Joint - Stock Company Equipment Steel Pharmaceuticals Specialty Retailers Automobiles 2010 2010 2010 2010 2002 1988 1981 1976 Food Products 2010 1993 Food Products Food Products Building Materials & Fixtures 2010 2010 2000 2002 2011 1975 Food Products 2011 2003 Medical Equipment 2011 2001 Steel Food Products 2011 2011 2002 1969 44 Appendix B: DR - GPM regression analysis result Pooled regression model Source SS Model 0.58971 Residual 10.23975 Df 386 391 MS Number of obs F( 5, 386) 0.117942 Prob> F 0.026528 R-squared Adj R-squared 0.027697 Root MSE = 392 = 4.45 = 0.0006 = 0.0545 = 0.0422 = 0.16287 Total 10.82946 GPM Coef Std Err t P>t [95% Conf Interval] DR SIZE AGE Industry equitize _cons -0.062 0.042 0.001 0.045 0.011 -0.213 0.0304 0.0129 0.0007 0.0167 0.0193 0.0808 -2.03 3.22 0.85 2.67 0.56 -2.63 0.043 0.001 0.397 0.008 0.573 0.009 -0.1212373 0.0162636 -0.0007879 0.0117063 -0.0270212 -0.3714977 -0.0018175 0.0671343 0.0019829 0.077349 0.0487886 -0.0539207 Random-effects model Random-effects GLS regression Group variable: CO Number of obs Number of groups = = 392 96 R-sq: within = 0.0043 between = 0.1543 overall = 0.0544 Obs per group: avg max = = = 4.1 corr(u_i, X) = (assumed) Wald chi2(5) Prob> chi2 = 19.62 = 0.0015 45 GPM Coef Std Err z P>z [95% Conf Interval] DR SIZE AGE Industry equitize _cons sigma_u sigma_e rho -0.063 0.041 0.001 0.045 0.011 -0.207 0.033 0.159 0.042 0.0315 0.0139 0.0008 0.0178 0.0206 0.0864 -2.01 2.96 0.75 2.53 0.55 -2.4 0.045 0.003 0.455 0.011 0.584 0.016 -0.1247801 0.0138089 -0.0009135 0.0101379 -0.0290629 -0.3767209 -0.0014685 0.0681753 0.0020397 0.0800297 0.0516004 -0.0378627 (fraction of variance due to u_i) Fixed-effects model Fixed-effects (within) regression Group variable: CO Number of obs Number of groups = = 392 96 R-sq: within = 0.0073 between = 0.0011 overall = 0.0003 Obs per group: avg max = = = 4.1 corr(u_i, Xb) = -0.3147 F(3,293) Prob> F = 0.72 = 0.5405 GPM Coef Std Err t P>t [95% Conf Interval] DR SIZE AGE Industry equitize _cons sigma_u sigma_e rho -0.074 -0.026 0.001 0.000 0.000 0.200 0.101 0.159 0.286 0.0543 0.0911 0.0086 (omitted) (omitted) 0.4247 -1.36 -0.29 0.17 0.175 0.773 0.864 -0.1806293 -0.2056275 -0.0154067 0.0329897 0.1529626 0.0183467 0.47 0.639 -0.6361457 1.035426 (fraction of variance due to u_i) 46 Hausman Test (b) fixed (B) random (b-B) Difference sqrt(diag(V_b-V_B)) S.E DR -0.074 -0.0631 -0.0106955 SIZE -0.026 0.0410 -0.0673245 AGE 0.001 0.0006 0.0009069 b = consistent under Ho and Ha; obtained from xtreg 0.0442234 0.090039 0.008542 B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(3) = (b-B)'[(V_b-V_B)^(-1)](b-B) = 1.04 Prob>chi2 = 0.7912 Appendix C: DR - ROE regression analysis result Pooled regression model Source SS Model 0.977434 Residual 8.818527 df 386 391 MS Number of obs F( 5, 386) 0.195487 Prob> F 0.022846 R-squared Adj R-squared 0.025054 Root MSE = 392 = 8.56 = = 0.0998 = 0.0881 = 0.15115 Total 9.795961 ROE Coef Std Err t P>t [95% Conf Interval] DR SIZE AGE Industry equitize _cons -0.060 0.068 0.000 0.022 0.026 -0.229 0.0282 0.0120 0.0007 0.0155 0.0179 0.0749 -2.13 5.69 -0.49 1.44 1.47 -3.05 0.034 0.627 0.149 0.143 0.002 -0.1153795 0.0447522 -0.0016035 -0.0080745 -0.0089053 -0.375893 -0.0045566 0.0919608 0.0009678 0.0528427 0.061447 -0.0811779 47 Random-effects model Random-effects GLS regression Group variable: CO Number of obs Number of groups = 392 = 96 Obs per group: avg max R-sq: within = 0.0175 between = 0.1592 overall = 0.0975 = = 4.1 = Wald chi2(5) corr(u_i, X) = (assumed) ROE DR SIZE AGE Industry equitize _cons Coef -0.084 0.063 0.000 0.026 0.026 -0.183 sigma_u sigma_e rho 0.082 0.127 0.294 Std Err 0.0316 0.0168 0.0009 0.0217 0.0250 0.1041 = 23.37 0.000 = Prob> chi2 z -2.64 3.72 -0.44 1.19 1.04 -1.76 P>z 0.008 0.657 0.235 0.301 0.079 [95% Conf Interval] -0.1455355 -0.0214976 0.029627 0.0955826 -0.0022002 0.0013865 -0.0167896 0.0682849 -0.023085 0.074759 -0.3869801 0.021056 Fixed-effects model Fixed-effects (within) regression Group variable: CO Number of obs Number of groups between = 0.0126 overall = 0.0168 Obs per group: avg max corr(u_i, Xb) = -0.8144 F(3,293) Prob> F R-sq: within = 0.0306 = = 392 96 = = = 4.1 = = 3.08 0.0277 48 ROE DR SIZE AGE Industry equitize _cons Coef -0.118 0.101 -0.012 0.000 0.000 -0.113 sigma_u sigma_e rho 0.198 0.127 0.709 Std Err 0.0433 0.0727 0.0068 (omitted) (omitted) 0.3389 t -2.72 1.39 -1.76 P>t 0.007 0.165 0.079 [95% Conf Interval] -0.2031056 -0.0326367 -0.041919 0.2442375 -0.0255132 0.0014222 -0.33 0.738 -0.7804263 (B) random (b-B) Difference 0.553495 Hausman Test (b) fixed sqrt(diag(V_b-V_B)) S.E DR -0.118 -0.0835 -0.0343546 SIZE 0.101 0.0626 0.0385544 AGE -0.012 -0.0004 -0.0116386 b = consistent under Ho and Ha; obtained from xtreg 0.0295689 0.070725 0.0067816 B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(3) = (b-B)'[(V_b-V_B)^(-1)](b-B) = 4.77 Prob>chi2 = 0.1898 Appendix D: DR - ROA regression analysis result Pooled Regression model Source SS Df MS Model 0.407690253 Residual 7.10623618 386 0.08153805 0.018409938 Total 391 0.019217203 7.51392644 Number of obs F( 5, 386) Prob> F R-squared Adj R-squared Root MSE = = = = = = 392 4.43 0.0006 0.0543 0.042 0.13568 49 ROA Coef DR -0.058 SIZE 0.038 AGE 0.000 Industry 0.023 equitize 0.012 _cons -0.104 Random-effects model Std Err 0.0253 0.0108 0.0006 0.0139 0.0161 0.0673 Random-effects GLS regression Group variable: CO [95% Conf Interval] -0.1079973 -0.0085137 0.0170806 0.0594588 -0.0015622 0.0007461 -0.0039078 0.0507763 -0.019118 0.0440359 -0.2367326 0.0278273 Obs per group: avg max Wald chi2(5) Prob> chi2 between = 0.0935 overall = 0.0520 corr(u_i, X) = (assumed) Coef -0.063 0.031 -0.001 0.020 0.010 -0.046 P>t 0.022 0.487 0.093 0.438 0.121 Number of obs Number of groups R-sq: within = 0.0035 ROA DR SIZE AGE Industry equitize _cons t -2.3 3.55 -0.7 1.69 0.78 -1.55 Std Err 0.0297 0.0163 0.0009 0.0211 0.0242 0.1005 z -2.13 1.92 -0.84 0.96 0.4 -0.45 P>z 0.033 0.055 0.398 0.338 0.686 0.651 = = 392 96 = = = = = 4.1 9.82 0.0805 [95% Conf Interval] -0.1215619 -0.0051789 -0.0006108 0.0631488 -0.0024869 0.0009887 -0.0210792 0.0614738 -0.037656 0.0572347 -0.2425147 0.1515114 sigma_u 0.083 sigma_e 0.117 rho 0.334 Fixed-effects model Fixed-effects (within) regression Group variable: CO R-sq: within = 0.0319 between = 0.0030 overall = 0.0018 corr(u_i, Xb) = -0.8593 Number of obs = 392 Number of groups = 96 Obs per group: avg max F(3,293) Prob> F = = = = = 4.1 3.22 0.0231 50 ROA DR SIZE AGE Industry equitize _cons Coef -0.064 -0.001 -0.012 0.000 0.000 0.412 sigma_u sigma_e rho 0.190 0.117 0.727 Std Err 0.0398 0.0668 0.0063 (omitted) (omitted) 0.3115 t -1.62 -0.02 -1.98 P>t 0.107 0.988 0.049 [95% Conf Interval] -0.1426838 0.0139885 -0.1325259 0.1304711 -0.0248335 -0.0000781 1.32 0.187 -0.2014459 1.024518 Hausman Test (b) (B) (b-B) fixed random Difference sqrt(diag(V_bV_B)) S.E DR -0.064 -0.0634 -0.0009773 SIZE -0.001 0.0313 -0.0322964 AGE -0.012 -0.0007 -0.0117067 b = consistent under Ho and Ha; obtained from xtreg 0.0265101 0.0648051 0.0062264 B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(3) = (b-B)'[(V_b-V_B)^(-1)](b-B) = 10.10 Prob>chi2 = 0.0177 Appendix E: DR - Tobin’s Q regression analysis result Pooled regression model Source SS df MS Model Residual 9.47376552 254.442536 386 1.8947531 0.659177554 Total 263.916301 391 0.674977753 Number of obs F( 5, 386) Prob> F R-squared Adj R-squared Root MSE = = = = = = 392 8.56 0.0998 0.0881 0.15115 51 TQ Coef Std Err t P>t [95% Conf Interval] DR SIZE AGE Industry equitize _cons -0.271 0.101 0.000 0.162 0.175 0.599 0.1514 0.0645 0.0035 0.0832 0.0961 0.4026 -1.79 1.57 0.08 1.94 1.83 1.49 0.074 0.117 0.936 0.053 0.069 0.138 -0.5691407 -0.0253993 -0.0066229 -0.0020063 -0.0135364 -0.1930255 0.026146 0.2281823 0.0071891 0.325211 0.3643623 1.390041 Random-effects model Random-effects GLS regression Group variable: CO Number of obs Number of groups between = 0.0698 overall = 0.0271 Obs per group: avg max corr(u_i, X) = (assumed) Wald chi2(5) Prob> chi2 R-sq: within = 0.0056 = = 392 96 = = = 4.1 = = 6.94 0.2249 TQ Coef Std Err z P>z [95% Conf Interval] DR SIZE AGE Industry equitize _cons -0.208 0.002 -0.003 0.135 0.236 1.206 0.1717 0.0862 0.0047 0.1106 0.1274 0.5345 -1.21 0.02 -0.74 1.22 1.86 2.26 0.227 0.984 0.459 0.223 0.063 0.024 -0.5441261 -0.1671891 -0.0126209 -0.0819322 -0.0132503 0.1580748 0.1290037 0.1707286 0.0057005 0.3518063 0.4861245 2.253085 sigma_u sigma_e rho 0.329 0.627 0.216 52 Fixed-effects model Fixed-effects (within) regression Group variable: CO Number of obs Number of groups between = 0.0402 overall = 0.0018 Obs per group: avg max corr(u_i, Xb) = -0.9873 Wald chi2(5) Prob> chi2 R-sq: within = 0.3059 = = 392 96 = = = 4.1 = = 43.05 TQ Coef Std Err t P>t [95% Conf Interval] DR SIZE AGE Industry equitize _cons -0.089 0.014 -0.285 0.000 0.000 7.502 0.2140 0.3593 0.0338 (omitted) (omitted) 1.6749 -0.42 0.04 -8.43 0.678 0.968 -0.5102405 -0.6927875 -0.351596 0.3322644 0.7214773 -0.2184737 4.48 4.205207 10.79782 sigma_u 3.896 sigma_e 0.627 rho 0.975 Hausman Test (b) fixed (B) random (b-B) Difference sqrt(diag(V_b-V_B)) S.E DR -0.089 -0.2076 0.1185731 SIZE 0.014 0.0018 0.0125751 AGE -0.285 -0.0035 -0.2815746 b = consistent under Ho and Ha; obtained from xtreg 0.1277723 0.3488035 0.0334956 B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(3) = (b-B)'[(V_b-V_B)^(-1)](b-B) = 140.81 Prob>chi2 = 0.0000 53 54