(0.236) | (0.243) | (0.364) | (0.371) | (0.227) | (0.228) | (0.156) | (0.152) | |
PROFITABILITY | -0.767*** | -0.762*** | -0.711* | -0.740 | -1.441*** | -1.807*** | 0.167 | 0.143 |
(0.226) | (0.227) | (0.430) | (0.458) | (0.374) | (0.416) | (0.312) | (0.321) | |
CASH_RATIO | 0.187 | 0.209 | 0.112 | 0.078 | 0.224 | 0.321 | 0.140 | 0.181 |
(0.288) | (0.289) | (0.218) | (0.230) | (0.289) | (0.285) | (0.172) | (0.175) | |
Blocking factor | 16,973*** | 15,714*** | 14,802*** | 10,566*** | 7,936*** | 7,276*** | 1,498 | 0.628 |
(1,398) | (1,363) | (3,139) | (2,860) | (1,539) | (1,606) | (1,022) | (1,014) | |
Number of observations | 7,679 | 7,689 | 3,602 | 3,607 | 4,625 | 4,708 | 1,632 | 1,641 |
Industry dummy variables | No | No | No | No | No | No | No | No |
Year dummy variable | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
R-squared | 0.183 | 0.165 | 0.203 | 0.143 | 0.165 | 0.195 | 0.143 | 0.132 |
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Table 3.9 reports the estimation results of the fixed factor model studying the impact of investor protection rights on the relationship between stock liquidity and firm value. In columns 1 and 2, the variable measuring stock liquidity is the Amihud coefficient. In columns 3 and 4, the variable measuring stock liquidity is the difference between the bid and ask prices of stocks. The research results in column 2 show that the estimated parameter of the Amihud coefficient is negative and statistically significant at the 1% level. In column 3, although the results indicate a positive parameter of the variable of the bid and ask price of stocks, when calculating the marginal effects of this variable at the average value of all variables in the model, the thesis shows that the marginal effects of the bid and ask price of stocks on firm value are negative, meaning that stock liquidity and firm value have a positive relationship.
Table 3.10: Impact of investor protection rights on the relationship between liquidity and firm value
This table presents the estimation results from a fixed factor regression to investigate the impact of investor protection rights on the relationship between stock liquidity and firm value. The dependent variable in this model is firm value. Outliers of all variables are pruned at the 1st and 99th percentile levels. The standard errors of the parameters in the model are heteroscedasticity-corrected and autocorrelation-corrected at the firm level.
Dependent variable: TOBINQ
VARIABLES (1) (2) (3) (4)
AMIHUD 0.087 -0.202***
(0.084) (0.041)
QUOTED_SPREAD 6.019*** 0.095
(1.887) (0.375)
AMIHUD * ANTI_DIRECTOR_INDEX -0.123*** (0.026)
AMIHUD * CREDITOR_RIGHTS_INDEX -0.071*** (0.017)
QUOTED_SPREAD * ANTI_DIRECTOR_INDEX -1.828*** (0.476)
QUOTED_SPREAD * CREDITOR_RIGHTS_INDEX -0.845***
FIRM_SIZE
-0.965*** | -0.951*** | -0.847*** | (0.181) -0.850*** | |
LEVERAGE PROFITABILITY | (0.082) -0.885*** (0.145) -0.896*** (0.178) | (0.082) -0.898*** (0.144) -0.895*** (0.178) | (0.079) -1.301*** (0.146) -0.959*** (0.183) | (0.079) -1.282*** (0.147) -0.962*** (0.183) |
CASH_RATIO | 0.203 | 0.209 | 0.223 | 0.220 |
Constant | (0.185) 14,014*** (1,033) | (0.185) 13,885*** (1,030) | (0.185) 12.192*** (0.985) | (0.185) 12.249*** (0.982) |
Observations | 17,538 | 17,538 | 17,645 | 17,645 |
Industry fixed effects | No | No | No | No |
Year fixed effects | Yes | Yes | Yes | Yes |
R-squared | 0.160 | 0.159 | 0.142 | 0.143 |
The results of Table 3.10 show that the estimated parameter of the interaction variable between stock liquidity and investor protection rights has a negative coefficient and is statistically significant at the 1% level in all four columns of this table. This implies that the positive impact of stock liquidity on firm value will be stronger in countries with strong investor protection rights. Thus, this result supports the research hypothesis 2b of the thesis and can be explained based on the feedback theory between stock liquidity and firm value. This research result is not only statistically significant but also economically significant. For example, in column 1, the absolute value of the estimated parameter of the Amihud coefficient will increase from 0.159 to 0.528, equivalent to an increase of about 232% if the index of minority shareholder protection rights increases from 2 (the smallest in the sample) to 5 (the largest in the sample). 6 Similarly, in column 2, the absolute value of the estimated parameter of the Amihud coefficient will increase from 0.202 to 0.486, equivalent to an increase of about 141% if the index of creditor protection rights increases from 0 (the smallest in the sample) to 4 (the largest in the sample). 7
The research results in Table 3.10. show an inverse relationship between the financial leverage of enterprises and the value of enterprises. This shows that enterprises in the four European countries mentioned above do not use debt effectively, thus reducing the value of enterprises.
The estimated parameters of the Amihud coefficient and the bid-ask spread are all positive at the 5% level of significance in columns 1 to 6 (Table 3.10), consistent with the results for the United Kingdom, Germany, and France, respectively. This indicates an increase in stock liquidity in these countries, whether liquidity is measured by the Amihud coefficient or the bid-ask spread.
6 0.159 = |0.087 + 2*-0.123|, where 0.087 is the estimated parameter of the Amihud coefficient, 2 is the smallest value of ANTI_DIRECTOR_INDEX in the research sample and -0.123 is the estimated parameter of the interaction variable between the Amihud coefficient and ANTI_DIRECTOR_INDEX in column 1 of table 3.4.
Similarly, 0.528 = |0.087 + 5*-0.123|, where 0.087 is the estimated parameter of the Amihud coefficient, 5 is the largest value of ANTI_DIRECTOR_INDEX in the research sample and -0.123 is the estimated parameter of the interaction variable between the Amihud coefficient and ANTI_DIRECTOR_INDEX in column 1 of table 3.4.
7 0.202 = |-0.202 + 0*-0.071|, where -0.202 is the estimated parameter of the Amihud coefficient, 0 is
the smallest value of CREDITOR_RIGHTS_INDEX in the research sample and -0.071 is the estimated parameter of the interaction variable between Amihud coefficient and CREDITOR_RIGHTS_INDEX in column 2 of table 3.4.
Similarly, 0.486 = |-0.202 + 4*-0.071|, where -0.202 is the estimated parameter of the Amihud coefficient, 4 is the smallest value of CREDITOR_RIGHTS_INDEX in the study sample, and -
0.071 is the estimated parameter of the interaction variable between Amihud coefficient and CREDITOR_RIGHTS_INDEX in column 2 of table 3.4.
stock price, both reduce the firm's financial leverage. In Italy, the regression results indicate that the negative relationship between firm's stock liquidity and financial leverage exists only when stock liquidity is measured by the Amihud coefficient. Although the parameter estimate for the bid-ask spread in column 8 is positive, it is not statistically significant.
Among the countries of the United Kingdom, Germany and France, the estimated parameters of the variables measuring stock liquidity are the lowest for firms in France. This implies that the negative impact of stock liquidity on financial leverage in France is the weakest among the three countries. This result can be explained by the fact that investor protection in this country, measured by minority shareholder protection and creditor protection, is weaker than that in the United Kingdom and Germany. This result also suggests that the impact of stock liquidity on corporate capital structure is not uniform across countries, thereby confirming the necessity of studying this relationship in a cross-country context.
Table 3.11: Impact of stock liquidity on financial leverage
This table presents the estimation results from fixed factor regressions examining the impact of stock liquidity on corporate leverage for each country in the sample of this section. The dependent variable in this model is corporate leverage. Columns 1 and 2 present the results for the United Kingdom. Columns 3 and 4 present the results for Germany. Columns 5 and 6 present the results for France. Finally, columns 7 and 8 present the results for Italy. Outliers for all variables are truncated at the 1st and 99th percentiles. The standard errors of the parameters in the model are heteroscedasticity-corrected and autocorrelation-corrected at the firm level.
Dependent variable: LEVERAGE
United Kingdom Germany France Italy
Variable
(1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | |
AMIHUD | 0.051*** | 0.042*** | 0.042*** | 0.048*** | ||||
(0.005) | (0.005) | (0.006) | (0.007) | |||||
QUOTED_SPREAD | 0.292*** | 0.449** | 0.119** | 0.261 | ||||
(0.052) | (0.198) | (0.047) | (0.433) | |||||
FIRM_SIZE | 0.054*** | 0.044*** | 0.064*** | 0.049*** | 0.085*** | 0.074*** | 0.168*** | 0.140*** |
(0.007) | (0.007) | (0.014) | (0.013) | (0.009) | (0.009) | (0.024) | (0.025) | |
FIXED_ASSETS | 0.144*** | 0.155*** | 0.237*** | 0.227*** | 0.272*** | 0.260*** | 0.143* | 0.114 |
(0.036) | (0.037) | (0.058) | (0.060) | (0.069) | (0.069) | (0.074) | (0.076) | |
PROFITABILITY | -0.062*** | -0.062*** | -0.058*** | -0.058*** | -0.150*** | -0.146*** | -0.441*** | -0.435*** |
(0.010) | (0.010) | (0.019) | (0.021) | (0.025) | (0.023) | (0.072) | (0.071) | |
MARKET_TO_BOOK | -0.002*** | -0.003*** | -0.004*** | -0.004*** | -0.004*** | -0.005*** | -0.001 | -0.002 |
(0.000) | (0.001) | (0.001) | (0.001) | (0.001) | (0.001) | (0.002) | (0.002) | |
TAX_SHIELD | -0.495*** | -0.526*** | -0.414*** | -0.487*** | -0.509*** | -0.577*** | 0.290 | 0.065 |
(0.113) | (0.115) | (0.146) | (0.154) | (0.166) | (0.167) | (0.356) | (0.372) | |
Blocking factor | -0.524*** | -0.393*** | -0.774*** | -0.446*** | -0.851*** | -0.685*** | -1.948*** | -1.488*** |
(0.083) | (0.086) | (0.184) | (0.162) | (0.113) | (0.116) | (0.328) | (0.340) | |
Number of observations | 7,748 | 7,758 | 3,701 | 3,709 | 4,654 | 4,744 | 1,647 | 1,656 |
Industry dummy variables | Are not | Are not | Are not | Are not | Are not | Are not | Are not | Are not |
Year dummy variable | Have | Have | Have | Have | Have | Have | Have | Have |
R-squared | 0.149 | 0.111 | 0.174 | 0.129 | 0.182 | 0.143 | 0.372 | 0.307 |