Panel Threshold Effect of Debt Ratio on Firm Value in Taiwanese

Listed Companies
Feng-Li Lina
a
Associate Professor, Department of Accounting, Chaoyang University of Technology, Taichung, Taiwan.
Ph.D Candidate, College of Business, Feng Chia University, Taichung, Taiwan, ROC.
Abstract
The goal in this paper is to analyze whether leverage affects firm value for a panel of 272 Taiwanese
listed companies during the nine-year period 1997 to 2005. Advanced panel threshold regression model is
performed to test if there exists an optimal debt ratio , which may result in threshold effects and
asymmetrical relationships between debt ratio and firm value. Tobins q is adopted as proxy variables for
firm value.
The result in this study shows that there exists two thresholds effect between debt ratio and firm
value. The estimated threshold value ( 1 , 2 ) are found to be 48.92% and 49.55%. Among three
coefficients ( 1 , 2 , 3 ), the estimate of coefficient 1 , 3 are negative but not significant which
means when the debt ratio is smaller than 48.92% or greater than 49.55% , the relationship between debt
ratio and firm value is unclear. In the second regime, where the debt ratio is between 48.92% and 49.55%,
the estimate of coefficient 2 is 0.009, which implies Tobins q will be increased by 0.009% via 1%
increase of debt ratio. Tobins q will also be increased. Thus, this suggests that financial managers should
utilize the relevant financial leverage wisely in order to maximize the firms value.
Keywords: Tobins q, Panel threshold effect, Debt ratio

1. Introduction
The theory of business finance in a modern sense starts with the Modigliani and Miller (1958)
capital structure irrelevance proposition, showing that the firm value and weighted average cost of capital
is unaffected by the financial structure of the firm. However, Modigliani and Millers (1958) perfect
market assumptions: such as no transaction costs, no taxes, symmetric information and identical
borrowing rates, and risk free debt, are contradictory to the operations in the real world. The literature on
capital structure emphasis has been placed on releasing the assumptions made by Modigliani and Miller,
in particular by taking into account corporate taxes (Modigliani and Miller, 1963), personal taxes (Miller,
1977), information asymmetries (Ross, 1977; Myers and Majluf, 1984; Myers, 1984), agency costs
(Jensen and Meckling, 1976; Myers,1977; Kim and Sorensen,1986), and bankruptcy costs(Stiglitz, 1972;
Castanias,1983; Altman,1984). Two main theories currently dominate the capital structure debate: the
trade-off theory and the pecking order theory.
The trade-off theory, developed by Myers (1977), is a static amount of debt leading managers to find
the optimal capital structure that maximize firm value when the benefits of debt equal the marginal cost
of debt. The pecking order theory, developed by Myers (1984) and Myers and Majluf (1984), predicts that
information asymmetry between managers and investors creates a preference ranking in firms financing
policy. Beginning with internal funds, followed by debt, and then equity, companies work their way up
the pecking order to finance investment in an effort to minimize adverse selection costs. Aggarwal and
Zong (2006) documents that in all four countries (USA, UK, Japan, and Germany), controlling for the
investment opportunity set, investment levels are significantly positively influenced by levels of internal
cash flows, indicating that firms face limitation in access to external finance and may operate using a
pecking order.
Like the pecking order theory, two additional theories of capital structure assert that there is no
reversion to a target capital ratio: the market timing theory and the inertia theory. Unlike the pecking
order theory, the market timing theory argued by Baker and Wurgler (2002), asserts that the most realistic
account of leverage is that it reflects the attempts by managers to time the equity marketissuing equity
when the market is receptive.. The firms observed capital structure reflects its cumulative ability to sell
overpriced equity shares. If market timing affects debt and equity issuance decisions, then measures of the
equity market (the market-to-book ratio) and the debt market (the interest rate) ought to have significant
impacts on changes in leverage. The inertia theory suggested by Welch (2004), is that managerial inertia
permits stock price changes to have a main effect on market-valued debt ratios. In Welchs view, shocks to
the stock market affect capital structure but since firms do not take steps to reestablish a leverage target,
the levels of debt and equity do not influence subsequent leverage adjustments. In contrast, the tradeoff
theory maintains that market imperfections generate a link between leverage and firm value, and firms
take positive steps to offset deviations from their optimal debt ratios. The pecking order, market timing,
and inertia theories of capital structure imply that managers perceive no great leverage effect on firm
value and therefore make no effort to reverse changes in leverage.
Unlike Welch (2004), Flannery and Rangan (2006) find that stock price changes have only transitory
1

effects on capital structure. Their evidence indicates that firms do target a long run capital structure, and
that the typical firm converges toward its long-run target at a rate of more than 30% per year. However,
more than half of the observed changes in capital structures can be attributed to targeting behavior while
market timing and pecking order considerations explain less than 10% each. Frank and Goyal (2004)
found that there is a long-run leverage ratio to which the system reverts. Deviations from that ratio help to
predict debt adjustments, but not equity adjustments. A high ratio of market to book is associated with
subsequent debt reduction, but there is no effect in the equity market.
The relationship between capital structure and firm value has been the subject of considerable
debate throughout the literature. There are two issues to discuss: 1. Do firms reverse to an optima debt
ratio ?; 2. Do leverage effect on firm value ?. The goal of this study is to test whether application of
financial leverage affects firm value of Taiwanese listed firms, we apply threshold regression model to the
observed balanced panel data to test if there exists an optimal debt ratio which may result in threshold
effect and asymmetrical responses of the firm value to the debt ratio. If this threshold value of is
verified, the financial managers should take steps to increase debt levels in the low debt regime of debt
ratio lower than the . Conversely, they should take steps to reduce debt levels in the high debt regime of
debt ratio higher than .
This paper contributes to previous literature in two aspects. First, we apply advanced panel
threshold regression model developed by Hansen (1999) to test if there exists a threshold of optimal
debt usage. In contrast with traditional linear model, this nonlinear threshold model can describes the
trade-off between the benefits of tax shields of more debts and the disadvantages of costs from
additional debts that may damage the firm value. Second, its panel data of Taiwanese listed companies to
be considered for fully examining the financial characteristics of the Taiwanese industry and solving the
short period sample problem.
The remainder of this paper is organized into five sections. Section 2 provides data collection and
Methodology, Section 3 discusses the empirical results, and finally Section 4 concludes the study with
implications of the findings and suggestions for future research.

2. Methodology
2.1 Sample set
This paper explores if there exists an optimal debt ratio, which may result in threshold effect and
asymmetrical responses of the firm value to the debt ratio through employing threshold regression model.
The investigation has been performed via balanced panel data for a sample of 272 selected Taiwanese
companies listed on the Taiwan Stock Exchange during 1997 to 2005. Total 2,448 observations are
adopted for each variable considered. Table 1 shows the industry breakdown of the sample. Eighteen
industries are listed in the table 1. Electron and Textiles industries accounted for more than one-thirds of
the sample, and the remaining industries had fewer than ten percent of the sample.

2.2 Variables
In order to consider the effect of market valuation of a firm, Tobins q, which defined as the ratio of
the market value of a firm to the replacement cost of its assets, is also selected as the proxy variable for
the firm value. The calculation of the approximated q, following the suggestions by Chung and Pruitt
(1994), is defined as follows:
Approximated Tobins q = (MV + PS + DEBT)/TA,
where MV is the product of a firm's share price and the number of common stock shares outstanding, PS
is the liquidating value of the firm's outstanding preferred stock, DEBT is the value of the firm's shortterm liabilities net of its short-term assets, plus the book value of the firm's long-term debt, and TA is the
book value of the total assets of the firm.
There are two categories of explanatory variables in our panel data. The first is the threshold
variable, debt to total assets ratio (debt ratio), which is the key variable used to investigate whether there
exists an asymmetric threshold effect of the leverage on firm value. In our examination, four applied
control variables include management ownership ratio, natural log of total assets, ratio of R&D expenses
to total sales, and ratio of advertising expenses to total assets, which are presumed to have influences
upon the firm value. All data sets are obtained from Taiwan Economic Journal (TEJ) Data of Taiwan.
Table 2 shows the descriptive statistics of variables for 272 firms
2.3 Research methodology
2.3.1 Panel Unit Root Models
Hansens (1999) panel threshold regression model is an extension of the traditional least squared
estimation method, in fact. It requires that variables considered in the model need to be stationary in order
to avoid the so-called spurious regression1. Thus, the unit root test is first processed in this study. Since
the data are all panel in this investigation, both well known LLC (Levin, Lin and Chu, 2001) and IPS (Im,
Pesaran and Shin, 1997) techniques are employed for the panel unit root tests2.
Table 2 presents the descriptive statistics of variables for 272 firms. The result of the stationary test
for each panel (i.e. explained variables, threshold variable, and control variables) shows that all the
variables are most likely to be presumed to carry stationary characteristics since the null of unit root are
mostly rejected, especially in the findings from LLC test 3. These stationary findings are available for
further estimations of the panel threshold regression.
2.3.2 Threshold Autoregressive Model
1

Spurious regression is argued in Granger and Newbold (1974) that the estimation of the relationship among non-stationary series is easily
getting higher R2 and t statistics.
2
LLC is a modified version of the LL (Levin and Lin, 1992, 1993) panel unit root technique.
3
For saving space, the results are not reported here. However, it will be available upon readers request.

Modern dynamic capital structure model proposed an idea of finding the target optimal debt ratio
and firms will adjust outstanding debt levels in response to changes in firm value. This paper applies a
newly-developed, alternative method: panel threshold regression model to solve this problem, to strike a
balance between the tax benefit and the potential costs that comes along with this benefit. Since Tong
(1978) proposed Threshold Autoregressive model, thereafter, this non-linear time series model has
become very popular for economic and financial research.
When the Threshold Autoregressive Model is estimated, first we should test if there exists threshold
effects. If we can not reject the null hypothesis, the threshold effect doesnt exist. Again, the existence of
nuisance will make the testing statistic follow non-standard distribution, which was called Davies
Problem4. Hansen (1999) suggested a bootstrap method to compute the asymptotic distribution of
testing statistics in order to test the significance of threshold effect. Furthermore, when the null hypothesis
doesnt hold, which means, the threshold effect does exist, Chan (1993) proved that OLS estimation of
threshold is super consistent, the asymptotic distribution is derived. However, nuisance influences this
distribution and makes it non-standard. Hansen (1999) used simulation likelihood ratio test to derive the
asymptotic distribution of testing statistic for a threshold. Hansen (1999) proposed to use two-stage OLS
method to estimate the panel threshold model. On the first stage, for any given threshold ( ) , compute

the sum of square errors (SSR) separately. On the second stage, try to find the estimation of $ by
minimization of the sum of squares. At last, use the estimation of threshold to estimate the coefficient for
every regime and do analysis.
2.3.3 Threshold Model Construction
According to the Tradeoff Theory of Capital Structure, when debt ratio increases, the interest tax
shield increases; however, on the other side, leverage related costs increase to offset the positive effect of
debt ratio to the firm value. Thus, this paper aims at examining whether threshold effect exists between
the financial leverage and value. We assume that there exists an optimal debt ratio, and try to use
threshold model to estimate this ratio, which can capture the relationship between financial leverage and
firm value as well as help financial managers make decisions.
Thus we set up single threshold model as follows:
i hit 1 dit it
i hit 2 dit it

vit

if d it
if d it

(1)

(1 , 2 , 3 , 4 ) , hit ( sit , mit , git , cit )

Where vit represents proxy variables of the firm value, which are qit : Tobins q; d it , debt ratio,
which is also the threshold variable; , the specific estimated threshold value. There are four control
4

Davies Problem is one that testing statistics follow non-standard distribution because of the existence of the nuisance (Davies,
1977,1987). Afterwards, Andrews and Ploberger (1994) and Hansen(1996) tested again to solve the problem.

variables( hit ) that they may have influences upon the firm value, which are sit : natural log of total
assets, mit : management ownership ratio, git : ratio of R&D expenses to total sales, and cit : ratio of
advertising expenses to total assets. Besides, i , the fixed effect, represents the heterogeneity of
companies under different operating conditions; The errors it is assumed to be independent and
identically distributed with mean zero and finite variance 2 ( it ~ iid (0, 2 ) ); i represents different
companies; t represents different periods.
Another threshold regression model of (1) is to set:
vit i ' hit 1 d it I dit 2 dit I d it it

(2)

where I(.) represents indicator function,

vit i hit dit it can be written as:
hit
vit i ,
it
dit ( )
vit i xit it

(3)

d it I dit

d it I dit

dit

'
where 1 , 2 , ' , ' ' , xit hit' , d it' ( ) .

'

The observations are divided into two regimes depending on whether the threshold variable d it
is smaller or larger than the threshold value ( ). The regimes are distinguished by differing regression
slopes, 1 and 2 . We will use known vit and d it to estimate the parameters ( , , , and 2 ).
2.3.4 Estimation
Note that taking averages of (3) over the time index t to derive:
vit i ' dit it
where vi

1
T

v
t 1

it

(4)
1
T

t 1

it

, and

1T
T ditI(dit )
t1

1T
di dit ( ) T
T t1 1
T ditI(dit )
t1
Taking the difference between (3) and (4) yields:
vit* d it* ( ) it*

(5)

where v vit vi d ( ) d it ( ) d i ( ) and it i

Let
*
it

*
it

di*2 ( )

vi*2

*
it

i*2

* *
v di ( ) i
v*
d* ( ) *
iT
iT iT
*
i

Denote the stacked data and errors for an individual , with one time period deleted. Then let V , D ( )
and e denote the data stacked over all individuals.

v1*

V * vi*

*
vn

d1* ( )

1*

*
*
*
*
D ( ) d i ( ) , e i




*
*
n
dn ( )

Use this notation, (5) is equivalent to

Vit* Dit* ( ) eit*

(6)
The equation (6) represents the major estimation model of threshold effect. For any given , the
slope coefficient can be estimated by ordinary least squares (OLS). That is,
6

 D* ( ) D* ( ) D* ( )V *
1

(7)

The vector of regression residuals is

e* ( ) V * D * ( ) ( )

(8)

and the sum of squared errors, SSE is

SSE1 ( ) e* ( )e* ( ) V * ( I D * ( )( D * ( ) D * ( )) 1 D * ( ))V *

(9)

Chan (1993) and Hansen (1999) recommend estimation of by lease squares. This is easier to
achieve by minimization of the concentrated sum of squared errors (9). Hence the least squares estimators
of is
arg min SSE1 ( )
(10)
*
*
Once is obtained, the slope coefficient estimate is . The residual vector is e e and the

estimator of residual variance is

2 2 ( )

1
1
e * ( )e * ( )
SSE1 ( )
n(T 1)
n(T 1)

(11)

where n indexes the number of sample, T indexed the periods of sample.

2.3.5 Testing for a threshold
This paper hypothesizes that there exists threshold effect between the debt ratio and firm value. It is
important to determine whether the threshold effect is statistically significant. The null hypothesis and
alternative hypothesis can be represented as follows:

H 0 : 1 2

H 1 : 1 2
When the null hypothesis holds, the coefficient 1 = 2 the threshold effect doesnt exist. When the
alternative hypothesis holds, the coefficient 1 2 the threshold effect exists between the debt ratio and
firm value.
Under the null hypothesis of no threshold, the model is
vit ui hit dit it

(12)

After the fixed-effect transformation is made, we have

Vit * 1H it * eit *

(13)

~ * and sum of squared

The regression parameter is estimated by OLS, yielding estimate %
1 , residuals e

errors SSE0 ~
e* ~
e*.
/

Hansen (1999) suggests that the relevant F Test Approach and the sup-Wald statistic are used to test
the existence of threshold effect and to test the null hypothesis, respectively.
F sup F ( )
(14)
( SSE0 SSE1 ) / 1 SSE0 SSE1
F

(15)
SSE1 / n(T 1)
2

Under the null hypothesis, some coefficients (e.g. the pre-specified threshold, ) do not exist,
therefore, the nuisance exists. According to Davies problem (1977, 1987), the F statistic becomes nonstandard distribution. Hansen (1996) showed that a bootstrap procedure attains the first-order asymptotic
distribution, so p-values constructed from the bootstrap are asymptotically valid. Treat the regressors x it
and threshold variable d it as given, holding their values fixed in repeated bootstrap samples. Take the
regression residuals eit* , and group them by individual: ei* (ei1 , ei2 ,, eiT ) . Treat the sample

e , e ,e as the empirical distribution to be used for bootstrapping. Draw a sample of size n from the

empirical distribution and use these errors to create a bootstrap sample under H 0 . Using the bootstrap
sample, estimate the model under the null (13) and alternative (5) and calculate the bootstrap value of the
likelihood ratio statistic F ( ) (15). Repeat this procedure a large number of times and calculate the
percentage of draws for which the simulated statistic exceeds the actual. This is the bootstrap estimate of
the asymptotic p-value for F ( ) under H 0 . The null of no threshold effect is rejected if the p-value is
smaller than the desired critical value.
~
P P ( F ( ) F ( ) )
(16)
~
where is the conditional mean of F F .
2.3.6 Asymptotic distribution of threshold estimate
Chan (1993) and Hansen (1999) showed that when there is a threshold effect 1 2 , is
consistent for 0 , and that the asymptotic distribution is highly non-standard. Hansen (1999) argued that
the best way to form confidence intervals for is to form the no-rejection region using the likelihood
ratio statistic for tests on . To test the hypothesis

H0 : 0

H1 : 0
We construct the testing model:

SSE1 ( ) SSE1 ( )
(17)
2
Hansen (1999) pointed out that when LR1 ( 0 ) is too large and the p-value exceeds the confidence

LR1 ( )

interval, the null hypothesis is rejected 5. Besides, Hansen (1999) indicated that under some specific
assumptions6 and H 0 : 0 ,
LR1 ( ) d
(18)
as n , where is a random variable with distribution function

P( x) (1 exp( x )) 2
2

(19)

The asymptotic p-value can be estimated under the likelihood ratio. According to the proof of Hansen
(1999), the distribution function (18) has the inverse
c ( ) 2 log(1 1 )
(20)
from which it is easy to calculate critical values. For a given asymptotic level , the null hypothesis
0 rejects if LR1 ( ) exceeds c ( ) .
2.3.7 Multiple thresholds Model
If there exist double thresholds, the model is modified as:
'h d
it
1 it
it
i
vit i ' hit 2 dit it

'
i hit 3 dit it

if d it 1
if 1 dit 2

(21)

if 2 d it

where threshold value 1 2 . This can be extended to multiple thresholds model 1 , 2 , 3 , n .

3. Empirical Results
Its applied in this paper that the threshold theory is proposed by Hansen (1999) and the assumption
that debt ratio and corporate performance have asymmetric nonlinear relationship is made. First, if there
exists threshold effect, then test double threshold and single threshold effect are tested, respectively, and
the relevant formulas for both models are as follows:
'h d
it
1 it
it
i
vit i ' hit 2 dit it

'
i hit 3 dit it
i 'hit 1 dit it
'
i hit 2 dit it

vit

if d it 1
if 1 dit 2 for double threshold effect
if 2 d it
if dit
if d it

for single threshold effect

The dependent variable vit represents firm value, which uses Tobins q as proxies. The
independent variable d it represents debt ratio, which is indeed the threshold variable. hit is a control
5

Note that the statistic (17) is testing a different hypothesis from the statistic (15) introduced in the previous section.

H 0 : 0 while F ( ) is testing H 0 : 1 2 .
6

Refer to Hansen (1999) Appendix: Assumptions 1-8.

LR1 ( 0 ) is testing

variable vector that contains four variables of natural log of total assets, management ownership ratio,
R&D expenses to total sales ratio, and advertising expenses to total assets ratio. Besides, i , the fixed
effect, represents the heterogeneity of companies under different operating conditions. The errors it is
assumed to be independent and identically distributed with mean zero and finite variance 2 (

it ~ iid (0, 2 ) ). i and t are symbols for firms and time periods.
This paper follows the bootstrap method to get the approximation of F statistic and then calculate the
p-value. After repeating bootstrap procedure 1,000 times for each of the three panel threshold tests, Table
3 presents the empirical results of test for single threshold, double threshold, and triple threshold effects.
we find that the test for a single threshold and a triple threshold are insignificant with a bootstrap p-value
of 0.896 and 0.78 respectively, the significant finding at the 1% level with a bootstrap p-value of 0.004
occurs only in the test for a double threshold. We thus conclude that there exists a double threshold effect
of the debt ratio on firm value. For the remainder of the analysis we work with this double threshold
model.
When there exists a double threshold effect of the debt ratios on firm value, all observations are
split into three regimes. Table 4 represents the regression slope estimates together with the conventional
OLS standard errors and White-corrected standard errors for two regimes. Figure 1 shows the single
threshold. Figure 2 and Figure 3 presents the double threshold.
The estimated model from our empirical result is represented as follows:

i 0.001d it it if d it 48.92

i 0.009d it it if 48.92 d it 49.55

vit
i 0.002d it it if d it 49.55

1 and 2 plit the observations into three regimes depending on whether the threshold variable d it

is smaller or larger than the threshold value ( ).The regimes are distinguished by differing regression
slopes, 1 , 2 and 3 . In the first regime, where the debt ratio is below 48.92%, the estimate of
coefficient 1 is -0.001, but insignificant. In the second regime, where the debt ratio is above 48.92%%
but below 49.55%, the estimate of coefficient 2 is 0.009 , significant at the 1% level, which implies,
Tobins q will be increased by 0.009% via 1% increase of debt ratio. In the third regime, where the debt
ratio is above 49.55%, the estimate of coefficient 3 is -0.002, but insignificant. The estimate of
coefficient 1 , 3 are negative but not significant, which means, when the debt ratio is smaller than
48.92% or greater than 49.55% , We thus conclude that there exists an optimal debt ratio above 48.92%%
10

but below 49.55% that increase firm value. These results are consistent with the trade-off theory, for
which we may search a balance that the interest tax shield is equal to the incremental costs through debt
financing.
This paper further investigates the influences of four control variables upon the firm value. The
estimation of coefficients of control variables shown in Table 5, which shows that natural log of total
assets and R&D expenses to total sales ratio have significant negative impact on firm value. It means that
the negative relationship between firm size and firm value and the negative relationship between R&D
expenses and firm value. Hansen P361Tale4

4. Conclusion
Two main theories currently dominate the capital structure debate: the trade-off theory and the
pecking order theory. The trade-off theory (Myers, 1977), is a static amount of debt leading managers to
find the optimal capital structure that maximize firm value when the benefits of debt equal the marginal
cost of debt. The pecking order theory ( Myers, 1984; Myers and Majluf, 1984), predicts that information
asymmetry between managers and investors creates a preference ranking in companies financing policy.
Beginning with internal funds, followed by debt, and then equity, firms work their way up the pecking
order to finance investment in an effort to minimize adverse selection costs.
The goal of this paper is to investigate whether leverage affects firm value for a panel of 272
Taiwanese listed companies during the nine-year period 1997to 2005. Advanced panel threshold
regression model is performed to test if there exists an optimal debt ratio, which may result in threshold
effects and asymmetrical relationships between debt ratio and firm value. Tobin s q are adopted as proxy
variables for firm value.
The result shows that there exists double thresholds effect between debt ratio and firm value. The
estimated threshold value ( 1 , 2 ) are found to be 48.92% and 49.55%. Among three coefficients ( 1 ,
2 , 3 ), the estimate of coefficient 1 , 3 are negative but not significant, which means when the debt
ratio is smaller than 48.92% or greater than 49.55% , the relationship between debt ratio and firm value is
unclear. In the second regime, where the debt ratio is between 48.92% and 49.55%, the estimate of
coefficient 2 is 0.009, which implies Tobins q will be increased by 0.009% via 1% increase of debt
ratio. Thus, its concluded that there exists an optimal debt ratio between 48.92% and 49.55% that
increases firm value. These results are more consistent with the trade-off theory (Modigliani and Miller,
1963; Myers, 1977, and Ross, 1977) for which firm may search a balance that the interest tax shield is
equal to the incremental costs through debt financing. This suggests that financial managers should use
financial leverage wisely in order to maximize the firms value and investors should refer to the debt ratio
to make investment decisions.

11

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13

Table 1 Distribution of Sample

Industry

Number of the sample

Proportion of the samples

Cement

2.57%

Food

13

4.78%

Plastics

16

5.88%

Textiles

34

12.50%

Electric, Machinery

14

5.15%

Appliance, Cable

10

3.68%

Chemical

18

6.62%

Class, Ceramics

2.21%

Paper, Pulp

2.57%

Steel, Iron

18

6.62%

Rubber

2.57%

Automobile

0.74%

Electron

55

20.22%

Construction

22

8.09%

Transportation

10

3.68%

Tourism

1.84%

Department Stores

10

3.68%

Other

18

6.62%

Total

272

100.00%

14

Table 2 Descriptive Statistics of Variables for 272 firms

Variables

Statistic

86

Tobin's Q

Average
Maximum
Minimum
Std. Dev.

1.54298 1.17255 1.11566 0.55607 0.63109 0.61516

0.70696 0.67504 0.64153

0.85078

7.6233 6.11479 7.90927 3.32177 5.50582 3.5158

3.00755 2.26771 4.97011

7.90927

0.18843 -0.0525 -0.2744 -0.4317 -0.5449 -0.5525

-0.0101 -0.0381 -0.1715

-0.5525

1.00619 0.83048 1.18608 0.53085 0.64544 0.44246

0.45399 0.40252 0.51866

0.78629

Average 39.0678 39.3167 40.9019 42.7617 43.2783 43.9908

94.2 97.26
97.5 98.54
Maximum 104.04 108.04
3.2
4.95
7.22
6.55
7.88
3.54
Minimum
Std. Dev. 15.2508 16.0174 15.6339 15.6559 16.0538 17.1044

43.1507 43.3181 42.0372

41.9804

Management Average 0.50015 0.63585 0.46926 0.35371 0.38261 0.35665

8.03 11.63 10.54
Ownership Maximum 12.44 12.33 10.03
0
0
0
0
0
0
Minimum
Std. Dev. 1.40523 1.70767 1.31003 1.10363 1.30874 1.24282
Size

Debt Ratio

87

88

89

90

91

92

93

96.35
2.5

94

Total

98.88 112.61
2.08

112.61

1.55

1.55

17.255 17.9874 18.9035

16.7519

0.65 0.63324 0.63048

0.51244

10.07

8.32

9.98

12.44

1.42398 1.2976 1.38261

1.36553

15.7921 15.9226 15.9988 16.0634 16.0542 16.0533

16.0696 16.0887 16.0827

16.0139

19.1188 19.1307 19.1679 19.6473 19.6318 19.7291

19.798 20.0049 20.0451

20.0451

13.45 13.4177

13.4347 13.4582 12.6558

12.6558

1.01901 1.01821 1.04626 1.10105 1.11246 1.14413

1.17143 1.19506 1.2493

1.12199

Average 1.29923 1.30871 1.2286 1.22956 1.64923 1.56868

Maximum 14.67 16.05 14.89 15.42 54.59 44.67
0
0
0
0
0
0
Minimum
Std. Dev. 2.42469 2.43708 2.1355 2.1964 4.46087 3.7292

1.36846 1.19493 1.27246

1.34665

Advertising Average 0.74241 0.8227 0.86541 0.71578 0.64923 0.63743

Expenses
Maximum 15.0779 25.8538 23.2652 15.9404 8.16344 9.4443
0
0
0
0
0
0
Minimum
Std. Dev. 1.72723 2.3386 2.22231 1.7309 1.46739 1.50514

R&D
Expenses

Average
Maximum
Minimum
Std. Dev.

13.4427 13.3823 13.4416 13.4858

15

15.6

14.61

18.87

54.59

2.52359 2.07807 2.37747

2.81497

0.57062 0.57062 0.57062

0.68276

9.56762 9.56762 9.56762

25.8538

1.39547 1.39547 1.39547

1.72108

Table 3 Tests for threshold effects between the debt ratio and Tobins Q
Single threshold effect test
Threshold
-value
F
p-value

49.55
5.2743447
0.896

Critical Value of F
1%
5%
10%
30.37 20.182157
16.49

Double threshold effect test

Threshold
-value
F
p-value

Triple threshold effect test

48.93 49.55

Threshold
-value
F
p-value

27.732463
0.004***

Critical Value of F
1%
5%
10%
22.26 18.164921
15.69

27.97 48.93
49.55
6.6421943
0.78

Critical Value of F
1%
5%
10%
50.66 37.46094 28.97

notes: 1. F Statistic and P-value result from repeating bootstrap procedure 1000 times for each of the three
bootstrap tests.
2. ***, **, and *, represent the significant at 1%, 5%, and 10% levels, respectively.

Table 4 Estimated Coefficients for Tobins Q

Coefficient
estimate

1
2

-0.00109
0.008882
-0.00193

3
notes: 1.

1 2
,

1 d it 2

and

t OLS

OLS se
0.001852
0.002475
0.001406

-0.59039
3.5894**
-1.37215

White se

tWhite

0.001682
0.004744
0.001294

-0.65011
1.872264
-1.49187

are the coefficient estimates for regimes of

d it 1

and d it 2 .

Table5 Estimation of Coefficients of Control Variables

1
2
3
3

Coefficient
estimate

OLS se

t OLS

White se

tWhite

0.010792
-0.79509
-0.01457
-0.01105

0.011857
0.040601
0.008076
0.012376

0.9102
-19.5829***
-1.8036*
-0.8927

0.009048
0.070456
0.008625
0.010309

1.1928
-11.2850
-1.6887
-1.0717

notes: 1. 1 2 3 4 represent the estimated coefficients: management ownership ratio,

natural log of total assets, ratio of R&D expenses to total sales, and ratio of advertising

16

expenses to total assets.

2. ***, **, and *, represent the significant at 1%, 5%, and 10% levels, respectively.

Single Threshold

Double Threshold

17

18