Page | 58
Appendix A
Table I
Sample Firms Capital Intensity Ratio
The table below present the names and the ratio for capital intensity for firms in the sample. Capital intensity is calculated as a ratio of capital over labour. Capital represents the funds used to acquire fixed assets. Capital also includes additions of property, plants and equipment as well as investment in machinery and equipments. Capital does not include funds associated with acquisition. Labour represents the number of both full and part time employees of the firms’ in the sample. It does not include seasonal employees and emergency employees. The sample period (2005-2007) is used to show capital intensity of the firms.
Company name 2005 2006 2007 Company name 2005 2006 2007
AGL Resources Inc 1.38 1.45 1.41 AGR Group ASA 0.29 0.37 0.10
Amerigas Partners
LP 0.20 0.20 0.19 Aker ASA 0.11 2.12 1.31
Atmos Energy Corp. 0.83 0.88 0.88 Aker Solutions
ASA 0.05 0.05 0.09
Aygaz AS 0.92 0.99 0.69 Alliance Oil
Company Limited 0.47 0.52 0.19
Centrica PLC 0.24 0.30 0.32 Allis-Chalmers
Energy Inc 0.32 0.30 0.27
Enagas SA 2.04 2.63 2.96 Alon USA Energy
Inc 0.39 0.34 0.58
Energen Corp. 1.17 1.26 1.62 Amec PLC 0.05 0.10 0.07
Enia Spa 0.39 0.57 0.57 Anadarko
Petroleum Corp. 2.08 2.43 2.98
EQT Corp. 1.27 1.32 1.96 Anton Oilfield
Services Group 0.42 0.29 0.20
Ferrellgas Partners
Limited Partnership 0.34 0.35 0.34
AP Moller-Maersk
A/S 0.37 0.39 0.39
Gail (India) Limited 0.80 1.02 1.22 Apache Corp. 2.83 2.51 2.86
Gas Natural SDG
SA 1.79 2.12 2.41 Ashland Inc 0.27 0.28 0.27
Hiroshima Gas
Company Limited 0.45 0.51 0.55 Atco Limited 0.78 0.88 0.76
Inergy Holdings LP 0.43 0.47 0.54 Atwood Oceanics
Inc 0.44 0.68 0.84
Inergy Limited
Partnership 0.44 0.48 0.54 Bashneft 0.32 0.39 0.32
Keiyo Gas Company
Limited 0.55 0.57 0.66
Basic Energy
Services Inc 0.16 0.21 0.21
Korea Gas Corp. 2.20 2.54 2.08 BG Group PLC 2.37 2.52 2.63
Mainova AG 0.52 0.60 0.57 BHP Billiton
Page | 59
Metrogas SA 0.54 0.54 0.51 BHP Billiton PLC 0.97 1.16 1.16
Mitsuuroko
Company Limited 0.32 0.37 0.47 BJ Services Co 0.17 0.19 0.22
National Fuel Gas
Company 1.27 1.24 1.34 Black Hills Corp. 1.74 1.54 0.73
Nicor Inc 0.35 0.35 0.36 Bonheur ASA 1.38 1.19 0.97
Nippon Gas
Company Limited 0.59 0.51 0.68 Bourbon 0.54 0.98 0.85
Nisource Inc 1.37 1.40 1.34 BP PLC 1.00 1.13 1.17
Northwest Natural
Gas Company 0.92 0.97 1.02
Bronco Drilling
Company Inc 0.20 0.30 0.48
Oneok Inc 1.55 1.53 1.54 Calfrac Well
Services Limited 0.35 0.32 0.25
Osaka Gas Company
Limited 0.55 0.54 0.65
Canadian Natural
Resources Limited 2.05 2.48 2.07
Perusahaan Gas
Negara Terbuka 0.98 1.09 1.19 CAT Oil AG 0.12 0.11 0.09
Piedmont Natural
Gas Company Inc 0.83 0.91 0.92 Cavico Corp. 0.21 0.19 0.26
Questar Corp. 1.48 1.55 2.25 Chennai Petroleum
Corp. Limited 0.50 0.51 0.64
Rubis 1.10 1.00 0.98 Chesapeake Energy
Corp. 2.80 2.72 2.01
Saibu Gas Company
Limited 0.52 0.53 0.56 Chevron Corp. 1.23 1.28 1.39
Sala Corp. 0.14 0.15 0.16 China Gas Holdings
Limited 0.12 0.10 0.13 Shizuokagas Company Limited 0.63 0.66 0.78 China Oilfield Services Limited 0.78 0.36 0.69 Sinolink Worldwide Holdings Limited 0.73 0.70 0.67 China Petrochemical Development Corp. 0.97 0.93 0.83
Snam Rete Gas 2.15 2.97 2.20 China Petroleum &
Chemical Corp. 0.15 0.19 0.19
Southern Union
Company 2.05 2.21 2.33
Chubu Electric
Power Company Inc 1.49 1.23 1.40
Southwest Gas Corp. 0.91 0.93 0.95 Citic Resources
Holdings Limited 0.24 0.27 0.26
Spectra Energy
Page | 60
Star Gas Partners LP 0.13 0.14 0.14 Cnooc Limited 5.60 6.05 7.13
Sui Northern Gas 0.07 0.08 0.08
Compagnie Generale De
Geophysique-Verita
0.37 0.67 0.67
The Hong Kong And China Gas Company Limi 1.81 2.26 2.95 Complete Production Services Inc 0.23 0.25 0.24
The Laclede Group
Inc 0.43 0.43 0.48 Conocophillips 2.78 2.39 2.47
Toho Gas Company
Limited 0.69 0.74 0.78 Core Laboratories 0.08 0.07 0.08
Tokai Corporation 0.18 0.18 0.22 Costain Group PLC -0.01 0.02 0.01
Tokyo Gas Company Limited 0.63 0.65 0.80 Dawson Geophysical Company 0.12 0.11 0.13 Towngas China Company Limited 0.06 0.07 0.07 Delek US Holdings Inc 0.21 0.23 0.20
UGI Corp. 0.33 0.37 0.38 Devon Energy
Corp. 2.00 2.79 2.13
Ultrapar
Participacoes SA 0.23 0.34 0.30
Dialog Group
Berhad 0.14 0.15 0.10
WGL Holdings Inc 0.84 0.99 1.16 Diamond Offshore
Drilling Inc 0.68 0.63 0.68
Xinao Gas Holdings
Limited 0.07 0.08 0.08
Dominion
Resources Inc 1.60 1.35 1.41
3Com Corp. 0.25 0.24 0.20 Dynegy Inc 2.08 2.82 2.28
A & D Company
Limited 0.08 0.07 0.08 Elnusa Terbuka 0.06 0.07 0.11
A-Data Technology
Company Limited 0.17 0.11 0.10 Enbridge Inc 2.41 2.78 2.54
Aalberts Industries
NV 0.10 0.12 0.15 Encana Corp. 2.14 2.22 2.65
Aaon Inc 0.07 0.07 0.07 Energen Corp. 1.17 1.26 1.62
ABB Limited 0.05 0.08 0.07 ENI 0.87 1.08 1.10
ABB Limited 0.09 0.12 0.12 Ensco International
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Acco Brands Corp. 0.17 0.20 0.13 Anhui Quanchai
Engine 0.04 0.04 0.06
Actuant Corp. 0.13 0.14 0.16 Anhui Wanwei
Updated 0.04 0.15 0.10 Adda Corporation 0.01 0.01 0.01 Anhui Xingma Automobile Company 0.06 0.07 0.07
Addtech AB 0.05 0.06 0.08 Anhui Zhongding
Sealing 0.02 0.02 0.02
Adval Tech Holding
AG 0.15 0.15 0.10 Anritsu Corporation 0.21 0.18 0.24 Advanced Technology & Materials Company 0.13 0.16 0.17 Anyuan Industrial Company Limited 'A' 0.03 0.03 0.02 Advantech Company Limited 0.14 0.13 0.08 AP Moller-Maersk A/S 0.37 0.39 0.39 Aerospace Times Electronic Technology 0.03 0.05 0.05 Apple Inc 0.56 0.61 0.60
Aerosun Corp. 0.04 0.07 0.07 Arcelik AS 0.14 0.15 0.12
AFG Arbonia Forster Holding AG 0.13 0.14 0.15 Arima Communications Corp. 0.07 0.05 0.03 AGA Rangemaster Group PLC 0.13 0.12 0.13 Arima Photovoltaic
& Optical Corp. 0.06 0.03 0.04
Agco Corporation 0.16 0.17 0.17 Arrk Corporation 0.07 0.07 0.07
Ahlstrom OYJ 0.19 0.22 0.18
Asahi Diamond Industrial Company Limited
0.23 0.24 0.27
Aichi Corp. 0.32 0.28 0.36 Ascom Holding AG 0.09 0.08 0.08
Aida Engineering Limited 0.35 0.35 0.38 Ashimori Industry Company Limited 0.17 0.14 0.15 Aiphone Company Limited 0.29 0.29 0.31 Asia Vital Components 0.02 0.02 0.02 Aiptek International Inc 0.05 0.05 0.05 ASM International NV 0.07 0.07 0.07
Air Liquide 0.37 0.42 0.43 ASM Pacific
Technology Limited 0.04 0.04 0.04
Air Products &
Page | 62 Aisino Company
Limited 0.46 0.52 0.06 Asseco Poland SA 0.11 0.21 0.19
Akebono Brake Industry Company Limited
0.08 0.09 0.12 Astec Industries Inc 0.09 0.10 0.11
Aker ASA 0.11 2.12 1.31 Astra Otoparts
Terbuka 0.03 0.04 0.04
Aker Solutions ASA 0.05 0.05 0.09 Asustek Computer
Inc 0.50 0.05 0.06
Alamo Group
Incorporated 0.12 0.12 0.12
Asyst Technologies
Inc 0.23 0.17 0.15
Alcatel-Lucent 0.31 0.31 0.16 ATB Austria
Antriebstechnik AG 0.03 0.04 0.05
Alfa Laval AB 0.13 0.15 0.14 Aten International
Company Limited 0.06 0.05 0.05
Alfa-Laval (India)
Limited 0.05 0.06 0.05
Atlas Copco (India)
Limited 0.06 0.07 0.06
Alps Electric
Company Ltd 0.08 0.08 0.08 Atlas Copco AB 0.19 0.16 0.19
Alstom SA 0.08 0.10 0.08
ATS Automation Tooling Systems Inc
0.10 0.10 0.13
Altek Corp. 0.11 0.09 0.09 Atsugi Company
Limited 0.26 0.26 0.29
Altra Holdings Inc 0.12 0.13 0.12 Audi AG 0.18 0.23 0.25
Aluminum Corp. Of
China Limited 0.08 0.11 0.13 Audix Corp. 0.02 0.03 0.03
Amada Company Limited 0.67 0.64 0.75 Aupu Group Holding Company Limited 0.05 0.04 0.05
Amano Corporation 0.23 0.24 0.23 Auriga Industries
A/S 0.21 0.32 0.31 Amoi Electronics Company Limited 0.01 -0.01 -0.11 Autron Corporation Limited 0.07 0.05 0.01 Ampco Pittsburgh Corp. 0.11 0.14 0.11 Avermedia Technologies Inc 0.11 0.11 0.11 Amtran Technology Company Limited 0.10 0.15 0.10 Avic Heavy Machinery Company Limited 0.03 0.03 0.03
Andrew Yule &
Page | 63
Andritz AG 0.09 0.09 0.10 AVY Precision
Technology Inc 0.01 0.01 0.02 Anhui Chaodong Cement 0.02 0.03 0.06 Axcelis Technologies Inc 0.32 0.36 0.27 Anhui Gujing
Distillery 0.02 0.02 0.04 AZZ Inc 0.10 0.11 0.10
Anhui Heli
Company 0.05 0.06 0.06 B & B Tools AB 0.07 0.09 0.15
3M Company 0.15 0.21 0.20 Baker Hughes Inc 0.18 0.21 0.22
Aarhuskarlshamn
AB 0.27 0.39 0.35
Baoding Tianwei
Baobian Electric 0.15 0.20 0.49
Abbott India Limited 0.06 0.06 0.04 Baotou Beifang
Chuangye 0.04 0.03 0.04
Abbott Laboratories 0.32 0.40 0.38 Baotou Huazi
Industrial Company 0.07 0.15 0.13 Achem Technology Corp. 0.08 0.08 0.08 Baotou Tomorrow Technology Company Limit 0.08 0.08 0.08
Actelion Limited 0.38 0.52 0.46 Barco NV 0.13 0.18 0.17
Acucar Guarani SA 0.03 0.03 0.07 Batenburg Beheer
NV 0.05 0.06 0.06
Adeka Corporation 0.45 0.45 0.75 Bauer AG 0.08 0.10 0.10
Aditya Birla Nuvo
Limited 0.11 0.22 0.22
BE Semiconductor
Industries 0.28 0.29 0.22
Advanex Inc 0.05 0.06 0.04 Befesa Medio
Ambiente SA 0.36 0.45 0.49 Advansa Sasa Polyester Sanayi 0.07 0.11 0.12 Beijing New Building Materials Public 0.26 0.30 0.15
Aeci Limited 0.08 0.09 0.10 Beijing Properties
Holdings Limited 0.01 0.01 0.01
Agrium Inc 0.29 0.60 0.54 Beiqi Foton Motor
Company Limited 0.02 0.01 0.02 Aica Kogyo Company Ltd 0.31 0.33 0.39 Beiren Printing Machinery Holdings Ltd 0.06 0.07 0.06
AIN Pharmaciez Inc 0.09 0.08 0.09 Belimo Holding AG 0.17 0.14 0.15
Air Liquide 0.37 0.42 0.43 Bell Equipment
Page | 64 Air Products &
Chemicals Inc 0.36 0.39 0.41
Asahi Organic Chemicals Industry Company
0.35 0.36 0.42
Air Water Inc 0.20 0.23 0.25 Ashland Inc 0.27 0.28 0.27
Airgas Inc 0.15 0.20 0.20 Asian Paints
Limited 0.05 0.06 0.07 Ajanta Pharma Limited 0.03 0.03 0.03 Aska Pharmaceutical Company Limited 0.26 0.25 0.33 Ajinomoto Company Inc 0.22 0.25 0.29 Aspen Pharmacare Holdings Limited 0.12 0.15 0.11 AKR Corporindo
Terbuka 0.07 0.09 0.11 Astellas Pharma Inc 0.69 0.67 0.82
Aktieselskabet Schouw & Company A/S
0.27 0.38 0.33 Astra Agro Lestari
Terbuka 0.02 0.02 0.02
Akzo Nobel NV 0.15 0.45 0.24 Astrapak Limited 0.04 0.04 0.04
Albemarle Corp. 0.48 0.49 0.49 Astrazeneca Pharma
India Ltd 0.04 0.04 0.02
Alberto Culver
Company 0.50 0.26 0.41 Astrazeneca PLC 0.25 0.38 0.41
Alcatel-Lucent 0.31 0.31 0.16 Auriga Industries
A/S 0.21 0.32 0.31
Alcon Inc 0.22 0.24 0.31 Aurobindo Pharma
Limited 0.07 0.10 0.09
Alfa Sab De CV 0.12 0.12 0.09 Aurubis AG 0.31 0.46 0.49
Alicorp SA 0.15 0.15 0.16 Aventis Pharma
Limited 0.08 0.09 0.08
ALK-Abello A/S 0.28 0.30 0.24 Avery Dennison
Corp. 0.10 0.08 0.09
Allergan Inc 0.70 0.68 0.65 AVI Limited 0.04 0.04 0.05
Altana AG 0.57 0.40 0.37 Avon Products Inc 0.05 0.05 0.05
Aluminum Corp. Of
China Limited 0.08 0.11 0.13
Bakrie Sumatera
Plantations Terbuka 0.02 0.04 0.03
Amano Corporation 0.23 0.24 0.23 Balrampur Chini
Page | 65
Amgen Inc 1.30 1.55 1.75 Baoding Swan
Company Limited 0.02 0.04 0.02 Amorepacific Corporation 0.27 0.31 0.25 Baoji Department Store Group 0.02 0.02 0.02 Amylin Pharmaceuticals Inc 1.39 0.76 0.68 Baotou Tomorrow Technology Company Limit 0.08 0.08 0.08 Andhra Sugars
Limited 0.05 0.06 0.07 Bare Escentuals Inc 0.11 0.09 0.08
Anhui Bbca Biochemical Company Limited 0.04 0.04 0.04 Barito Pacific TBK 0.05 0.48 0.63 Anhui Fengyuan Pharmaceutical Company 0.02 0.02 0.02 Barloworld Limited 0.10 0.10 0.11
Anhui Golden Seed
Winery 0.03 0.03 0.04 BASF SE 0.34 0.42 0.39
Anhui Guofeng Plas
'A' 0.10 0.10 0.15 Bayer AG 0.34 0.41 0.34 Anhui Huaxing Chemical 0.04 0.05 0.07 Bayer Cropscience Limited 0.07 0.07 0.08 Anhui Liuguo
Chemical Company 0.07 0.11 0.13 Beiersdorf AG 0.14 0.14 0.16
Anhui Wanwei Updated 0.04 0.15 0.10 Beijing Tongrentang 0.12 0.15 0.19 Anhui Zhongding Sealing 0.02 0.02 0.02
Berger Paints India
Limited 0.03 0.04 0.07 Apeloa Company Limited 0.02 0.03 0.04 Bharat Petroleum Corp. Limited 0.25 0.25 0.31 Arakawa Chemical
Industries Limited 0.29 0.28 0.32 BIC 0.16 0.19 0.18
Arata Corporation 0.15 0.17 0.20 Biocon Limited 0.17 0.17 0.14
Arch Chemicals Inc 0.16 0.24 0.23 Biogen Idec Inc 1.93 1.30 1.47
Areva CI 0.18 0.26 0.21 Biotest AG 0.26 0.33 0.30
Arkema 0.16 0.19 0.20 Bioton SA 0.47 0.58 0.44
Arseus NV 0.15 0.20 0.27 Birla Corporation
Limited 0.01 0.02 0.02
Asahi Breweries
Page | 66
Appendix B
Test for Homogeneity of Variance and Normality
Table (1) below shows the test for homogeneity of variance. Assumption for homogeneity of variance is confirmed with the mean residual significant at (0.01) significance level. Below the residual statistics table (1) is the histogram graph of the variables in the data-set. The dependent variable is leverage ratio. It shows by the graph that all variables are normally distributed with a sample size of 1152. The P-P plot plots the dependent variable against other variables in this study which depicts if the variables deviate from normality. The P-P plots shows residual are on a constant level. Table (II) shows the statistics of the normality test.
Table I Residuals Statistics
Minimum Maximum Mean Std. Deviation N Predicted Value -.0008 .4363 .2588 .06438 1152 Residual -.37174 1.43946 .00000 .15041 1152 Std. Predicted Value -4.032 2.757 .000 1.000 1152
Std. Residual -2.465 9.545 .000 .997 1152
Page | 67
Table II Test for Normality
The table shows the K-S test and S-W test statistics of normality. Normality is confirmed when P-value is greater 0.05 significance level. Sample size of the test (N) is 1152.
Kolmogorov-Smirnova Shapiro-Wilk
Statistic df Sig. Statistic df Sig.
Regulatory .211 1152 .000 .823 1152 .000 Lev .057 1152 .000 .956 1152 .000 profit .096 1152 .000 .906 1152 .000 tang .063 1152 .000 .975 1152 .000 Ndt .142 1152 .000 .789 1152 .000 Growth .168 1152 .000 .809 1152 .000 Dbanksys .354 1152 .000 .636 1152 .000 Lnsize .063 1152 .000 .977 1152 .000 Lev2 .094 1152 .000 .946 1152 .000
a. Lilliefors Significance Correction
Table III
Calculation Methods for Standard Error
The table below gives a summary of standard error analysis and the possible ways of calculating them.
Effect Temporary Permanent
Firm effect Standard error clustered Fixed-effect model
Time effect Fama/Macbeth model Fama/Macbeth model
Firm and time effect Section and time dummy
variable
Page | 68
Appendix C
Table I
Panel Least square Pooled and Cross-section Fixed Regression
The table reports the results of the Panel LS Pooled regression (results shown in the table as coefficient) and Time fixed regression (results shown in the table as coefficient time fixed effect) analysis. The balanced data-set consists of data from 288 firm within a four a four year time period (2005-2008) resulting to 1152 observations. The dependent variable for both model (2) and (3) is leverage ratio (Levi t) and it is measured as a ratio of total debt over total assets. Model 2 is defined as;
Levi,t = αi + β1(profiti,t) + β2(sizei,t) + β3(tangi,t) + β4(growthi,t) + β5(ndti,t) + β6(regqualityi,t) + β7(Cinti,t) + εi,t . Where αi signifies the constant in the model, β represents the coefficients of the independent variables, the independent variables are profitability (profiti t) is defined as earnings before interest, taxes and depreciation (Ebitda) as a function of
total assets (Ebitda I, t/Total asset i, t), size (sizei t) is defined as a logarithm of total assets, tangibility (tangi t) is defined as property, plant and equipments as a function of total assets (PP&E/Total assets), growth (growthi t) is defined as a change in
total asset ((total asset t/total asset t-1)-1), non-debt tax shield is defined as accumulated depreciation as a function of total asset (accumulated depreciation i, t / Total asset i, t), capital intensity (Cinti,t) is measured as the ratio of capital over labour (K/L) and regulatory quality (regqualityi t) is defined on a scale from -2.5 to +2.5 with higher values corresponding to higher regulatory quality. The subscript i and t in the model equation represents firm and time period respectively. The symbol εi,t signifies the error term in the model. Model (3)includes a dummy variable that reflects the different banking system and it represents (1) if it is a market based system or (0) bank based system. Model (3) equation is as follows;
Levi,t = αi + β1(profiti,t) + β2(sizei,t) + β3(tangi,t) + β4(growthi,t) + β5(ndti,t) + β6(regqualityi,t) + εi,t
All variables are similar to model (2) except the exclusion of capital intensity (Cinti,t) in model 3. For model 3, the
estimation technique is not supported for cross-section fixed effect. Values are approximated to the nearest whole number. The asterisks means ***significant at 1%, **significant at 5%, *significant at 10%. p-values are in parentheses.
MODEL (2) MODEL (3)
Variables Coefficient Coefficient
Page | 69
Table II
Panel Least square Pooled and Time Fixed Regression
The table reports the results of the Panel LS Pooled regression (results shown in the table as coefficient) and Time fixed regression (results shown in the table as coefficient time fixed effect) analysis. The balanced data-set consists of data from 288 firm within a four a four year time period (2005-2008) resulting to 1152 observations. The dependent variable for both model (2) and (3) is leverage ratio (Levi t) and capital intensity (cinti t) respectively. Leverage ratio is measured as a ratio of total debt over total assets, while capital intensity is measured as capital over labour. The equations of the models are defined as;
Levi,t = αi + β1(profiti,t) + β2(sizei,t) + β3(tangi,t) + β4(growthi,t) + β5(ndti,t) + β6(regqualityi,t) + β7(cinti,t)+ εi,t . Where αi signifies the constant in the model, β represents the coefficients of the independent variables, the independent variables are profitability (profiti t) is defined as earnings before interest, taxes and depreciation (Ebitda) as a function of total assets (Ebitda I, t/Total asset i, t), size (sizei t) is defined as a logarithm of total assets, tangibility (tangi t) is defined as property, plant and equipments as a function of total assets (PP&E/Total assets), growth (growthi t) is defined as a change in
total asset ((total asset t/total asset t-1)-1), non-debt tax shield is defined as accumulated depreciation as a function of total asset (accumulated depreciation i, t / Total asset i, t) and regulatory quality (regqualityi t) is defined on a scale from -2.5 to +2.5 with higher values corresponding to higher regulatory quality. The subscript i and t in the model equation represents firm and time period respectively. The symbol εi,t signifies the error term in the model. For Model (3):
Cinti,t = αi + β1(profiti,t) + β2(sizei,t) + β3(tangi,t) + β4(growthi,t) + β5(ndti,t) + β6(regqualityi,t) + β7D(levi,t) + εi,t All variables are similar to model (1) except the inclusion of leverage ratio as an independent variable. Values are approximated to the nearest whole number. Asterisks means ***significant at 1%, **significant at 5%, *significant at 10%. P-values are in parentheses.
Page | 70
Table III
Panel Least square Pooled and Time Fixed Regression
The table reports the results of the Panel LS Pooled regression (results shown in the table as coefficient) and Time fixed regression (results shown in the table as coefficient time fixed effect) analysis. The balanced data-set consists of data from 288 firm within a four a four year time period (2005-2008) resulting to 1152 observations. The dependent variable for both model (2) and (3) is leverage ratio (Levi t) and capital intensity (cinti t) respectively. Leverage ratio is measured as a ratio of total debt over total assets, while capital intensity is measured as capital over labour. The equations of the models are defined as;
Lev2i,t = αi + β1(profiti,t) + β2(sizei,t) + β3(tangi,t) + β4(growthi,t) + β5(ndti,t) + β6(regqualityi,t) + β7(cinti,t)+ εi,t . Where αi signifies the constant in the model, β represents the coefficients of the independent variables, the independent variables are profitability (profiti t) is defined as earnings before interest, taxes and depreciation (Ebitda) as a function of total assets (Ebitda I, t/Total asset i, t), size (sizei t) is defined as a logarithm of total assets, tangibility (tangi t) is defined as property, plant and equipments as a function of total assets (PP&E/Total assets), growth (growthi t) is defined as a change in
total asset ((total asset t/total asset t-1)-1), non-debt tax shield is defined as accumulated depreciation as a function of total asset (accumulated depreciation i, t / Total asset i, t) and regulatory quality (regqualityi t) is defined on a scale from -2.5 to +2.5 with higher values corresponding to higher regulatory quality. The subscript i and t in the model equation represents firm and time period respectively. The symbol εi,t signifies the error term in the model. For Model (3):
Cinti,t = αi + β1(profiti,t) + β2(sizei,t) + β3(tangi,t) + β4(growthi,t) + β5(ndti,t) + β6(regqualityi,t) + β7D(lev2i,t) + εi,t All variables are similar to model (1) except the inclusion of leverage ratio as an independent variable. Values are approximated to the nearest whole number. Asterisks means ***significant at 1%, **significant at 5%, *significant at 10%. P-values are in parentheses.
