RDP 9313: The Determinants of Corporate Leverage: A Panel Data Analysis Appendix 2: Unbalanced Panel Results

Geoffrey Shuetrim, Philip Lowe and Steve Morling

December 1993

In this appendix we report results using the unbalanced panel of 209 firms (Table A1).[23]

Table A1: General Specification: Unbalanced Panel
Variables Ordinary Least Squares Fixed Effects: Firms Random Effects: Firms Dynamic Fixed Effects: Firms
Leverage−1 – – – 1.36
(0.38)
Constant 11.01
(2.99)		 2.24 −5.99 –
Cash Flow −0.31
(0.06)		 −0.17
(0.05)		 −0.29
(0.06)		 −0.22
(0.06)
Firm Growth 0.05
(0.01)		 0.04
(0.01)		 0.05
(0.01)		 0.07
(0.02)
Real Tangible Assets 0.24
(0.02)		 0.15
(0.02)		 0.27
(0.01)		 0.05
(0.03)
Firm Size 2.67
(0.23)		 5.22
(0.39)		 3.76
(0.20)		 −0.60
(2.86)
Potential Debt Tax Shield 0.10
(0.07)		 0.17
(0.06)		 0.18
(0.07)		 0.03
(0.07)
Tax Exhaustion 2.68
(1.00)		 3.22
(0.79)		 3.38
(0.94)		 2.22
(0.91)
Real Asset Prices 2.88
(1.13)		 0.71
(0.82)		 4.88
(0.95)		 −3.05
(1.63)
CPI Inflation 0.18
(0.19)		 0.14
(0.13)		 0.16
(0.17)		 −0.12
(0.12)
Fund Cost Differential 0.25
(0.10)		 0.15
(0.07)		 0.09
(0.09)		 0.06
(0.08)
Mining −2.42
(0.78)		 – −3.64
(2.62)		 –
Wholesale 13.65
(1.03)		 – 14.24
(3.27)		 –
Retail 2.94
(1.20)		 – 2.96
(3.79)		 –
Service 12.16
(0.84)		 – 13.98
(2.70)		 –
Conglomerate 21.82
(2.11)		 – 19.41
(6.75)		 –
Unlisted 9.36
(0.57)		 – 11.62
(1.82)		 –
Note.
1. Numbers in parentheses are standard errors.

These results from the full sample of 209 firms are similar to those generated by the smaller balanced sample of 105 firms.[24] The coefficients on the financial statement related variables are consistent (in sign, magnitude and significance) with those reported in Table 3 for the balanced sample. While remembering that most of the firms in our sample are large relative to the average firm in the Australian corporate sector, the consistency of our results between the balanced and unbalanced panels of firms suggests that our results are reasonably robust.

On the other hand, the dynamic model estimates, generated from the unbalanced panel, are considerably different to those generated from the smaller, balanced panel of firms. Most importantly, the speed of adjustment coefficient estimated using the unbalanced panel indicates that leverage is explosive. This finding, given that leverage is bounded between zero and unity, highlights the imprecise nature of our dynamic estimates. Clearly, the results from the unbalanced panel of firms reinforce the need for further extensive research into the dynamic processes driving corporate financial structures.

Footnotes

The random effects model is estimated using the technique described in Baltagi (1985). [23]

The unbalanced sample has 3028 useable observations compared to the 1680 useable observations in the balanced sample. Thus the similarity between the results from the two panels is not forced by the common observations. [24]