3.3 Hypothesis
H1: The relationship between total debt to total capital and firm value is significantly positive.
According to most trade-off theory, because of less expensive cost of debt than cost of equity and tax benefits of debt, usage of debt financing increase corporate value. Meanwhile, according to agency theory, debt financing introduces creditor protection provisions which limit discretionary cash flow of managers, supervise managers’ behaviors against waste of corporate resources and reduce the damage to corporate value caused by managers(Jensen and Meckling, 1976). Also, it supports the signaling theory that high leverage level signals high corporate value from the perception of market(Ross, 1977).
H2: The relationship between …show more content…
A firm with good growth generally has relatively large development space and sustainable development capacity, so it has greater attraction and high degree of market recognition. Investors often regard good growth as a signal of good value. Therefore, firm growth may positively affect corporate value.
H4: Firm size has a significantly positive influence on corporate value.
The company large in scale shows a good prospect. When the size of the enterprise reaches a certain level, it results into the economies of scale. Large enterprises generate higher profit margins due to low unit cost. Moreover, they can apply some strategies such as price strategy to enhance entry barriers that can effectively prevent potential entrants to the industry, thereby businesses can get high profit margins in the long-term.
3.4. Model and …show more content…
Then, I use software EVIEWS7.0 to do unit root test for checking the stationarity of each variable. Before the regression, correlation test between variables should be done in the model to eliminate the multicollinearity effect. Based on the results of F and Hausman test, a fixed effects model is selected from three basic estimation techniques for panel data, including simple cross-section, fixed and random effects approaches. Finally, t-statistic and F-statistic show the significance level of individual variable and overall
H1: The relationship between total debt to total capital and firm value is significantly positive.
According to most trade-off theory, because of less expensive cost of debt than cost of equity and tax benefits of debt, usage of debt financing increase corporate value. Meanwhile, according to agency theory, debt financing introduces creditor protection provisions which limit discretionary cash flow of managers, supervise managers’ behaviors against waste of corporate resources and reduce the damage to corporate value caused by managers(Jensen and Meckling, 1976). Also, it supports the signaling theory that high leverage level signals high corporate value from the perception of market(Ross, 1977).
H2: The relationship between …show more content…
A firm with good growth generally has relatively large development space and sustainable development capacity, so it has greater attraction and high degree of market recognition. Investors often regard good growth as a signal of good value. Therefore, firm growth may positively affect corporate value.
H4: Firm size has a significantly positive influence on corporate value.
The company large in scale shows a good prospect. When the size of the enterprise reaches a certain level, it results into the economies of scale. Large enterprises generate higher profit margins due to low unit cost. Moreover, they can apply some strategies such as price strategy to enhance entry barriers that can effectively prevent potential entrants to the industry, thereby businesses can get high profit margins in the long-term.
3.4. Model and …show more content…
Then, I use software EVIEWS7.0 to do unit root test for checking the stationarity of each variable. Before the regression, correlation test between variables should be done in the model to eliminate the multicollinearity effect. Based on the results of F and Hausman test, a fixed effects model is selected from three basic estimation techniques for panel data, including simple cross-section, fixed and random effects approaches. Finally, t-statistic and F-statistic show the significance level of individual variable and overall