OLS regression Analysis

An OLS regression analysis was conducted on the two models, one with book value of leverage as the dependent variable and the other with market value of leverage.

Blev = 0 + 1  profit + 2  sizeit + 3  tangit + 4  growit + 5  liqit + 6  ndtsit + it

Mlev = 0 + 1  profit + 2  sizeit + 3  tangit + 4  growit + 5  liqit + 6  ndtsit + it

Table 8: Pooled OLS regression results

Variables 1: Book-value of leverage 2: Market value of leverage

profitability -0.1185557** -0.1945976***

size -0.0065745* -0.0054111

tangibility 0.431606*** 0.4482379***

growth -0.0016718 -0.0403105

liquidity -0.0226829*** -0.0253397***

Non-debt tax shield -0.5019125** -0.4728972**

F 88.30 131.49

Prob > F 0.0000 0.0000

R-squared 0.4774 0.5767

Adjusted R-squared 0.4720 0.5724

4.2.1.1 ANOVA results

The values for F and Prob > F indicates whether or not the regression model is significant. Specifically, they test the null hypothesis that all of the regression

coefficients are equal to zero. For both models, Prob > F is equal to 0.000, which means that we can reject H0 and conclude that the model is significant. The F-value is the explained variability divided by the unexplained variability. In these models the F-value is 88.30 and 131.49, respectively. The higher the F-F-value, the more of the total variability is accounted for in the model.

R-squared measures the explanatory power of the model and indicates how the variance in the dependent variable (Y) can be explained by the independent variables (X) (Koop, 2013). The results show that the model with book value as the dependent variable is equal to 0.4720, while using market value gives a significantly higher R-squared of 0.5724. This means that for model 1, 47.20% of the variation in leverage at book value can be explained by the significant independent variables. For model 2, 57.24% of the variation in market value can be explained by the significant

independent variables.

4.2.1.2 Interpretation of coefficients

The table shows that there are some differences in the magnitude of the coefficients between having book value as the independent variable compared market value. When interpreting the coefficients, all other variables are kept constant (ceteris paribus).

Profitability

Model 1: Book Value of Leverage

There is a negative relationship between book value of leverage and profit. When EBITDA/Total assets increases by 1 percentage point, book-leverage decreases by 0.11 percentage points. The coefficient is significant at the 1% significance level.

Model 2: Market Value of Leverage

The regression obtained a negative relationship between market value of leverage and profitability. The results indicate that when profitability increases with 1 percentage point, market value of leverage decreases with 0.19 percentage points.

Size

Model 1: Book Value of Leverage

There is a negative relationship between size and book value of leverage. When size increases by 1 percentage point, book value of leverage decreases by 0.006 percentage points. The coefficient is significantly different from zero at the 5% significance level.

Model 2: Market Value of Leverage

There is a negative relationship between size and market value of leverage. When size increases by 1 percentage point, market value of leverage decreases by 0.005

percentage points. However, the results suggest that the variable is not significantly different from zero at the 5%, 1% or the 0.1% significance level.

Tangibility

Model 1: Book Value of Leverage

There is a positive relationship between book value of leverage and tangibility. The results indicate that when the ratio fixed assets/total assets increases with 1 percentage point, book value of leverage increases by 0.43 percentage point.

Economically, this is a strong positive relationship between the variables. Tangibility is significantly different from zero at the 0.1% significance level.

Model 2: Market Value of Leverage

There is a positive relationship between market value of leverage and tangibility. The results indicate that when the tangibility ratio increases with 1 percentage point, book value of leverage increases by 0.44 percentage points. Tangibility is significantly different from zero at the 0.1% significance level.

Growth

Model 1: Book Value of Leverage

There is a negative relationship between growth and book value of leverage and a 1%

percentage point increase will result in a 0.0016 decrease in book value of leverage.

Growth is not significantly different from zero at the 5%, 1% or 0.1% significance level Model 2: Market Value of Leverage

There is a negative relationship between growth and market value of leverage. The results indicate that a 1 percentage point increase in the growth variable will cause a 0.04 decrease in market value of leverage. However, the coefficient is not significantly different from zero at the 5%, 1% or 0.1% significance level

Liquidity

Model 1: Book Value of Leverage

There is a negative relationship between book value of leverage and liquidity. The results suggest that a 1 percentage point increase in the liquidity ratio will lead to a decrease in book value of leverage of 0.022 percentage points.

Model 2: Market Value of Leverage

There is a negative relationship between liquidity and market value of leverage. A 1 percentage point increase in the liquidity ratio will result in a 0.025 decrease in the market value of leverage

Non-Debt Tax Shield

Model 1: Book Value of Leverage

There is a negative relationship between non-debt tax shield and the book value of leverage. A one percentage point increase in the ratio depreciation/total assets may lead to a 0.5 percentage point decrease in the book value of leverage. This can be considered an economically strong negative relationship. The variable is significant at the 1% significance level

Model 2: Market Value of Leverage

There is a negative relationship between non-debt tax shield and the market value of leverage. The results suggest that a 1 percentage point increase in the ratio

depreciation/total assets causes a 0.5 percentage point decrease in the book value of leverage. The variable is significant at the 1% significance level