Does firm efficiency matter for debt financing decisions? Evidence from the biggest manufacturing countries

Figures & data

Table 1. Stochastic frontier – True random effect regression results

Frontier	Material	Capital Goods	Auto Industry	Household Durable	Food & Bev.	Household Personal	Health Equip.	Techno Hardware	Semi-Conductor	All
ln(K)	0.489***	0.444***	0.476***	0.425***	0.536***	0.299***	0.481***	0.417***	0.398***	0.432***
	(0.008)	(0.010)	(0.014)	(0.008)	(0.006)	(0.027)	(0.014)	(0.009)	(0.022)	(0.004)
ln (L)	0.403***	0.368***	0.359***	0.402***	0.254***	0.449***	0.478***	0.435***	0.477***	0.398***
	(0.010)	(0.007)	(0.018)	(0.007)	(0.008)	(0.025)	(0.021)	(0.011)	(0.028)	(0.005)
Intercept	7.218***	8.306***	8.078***	8.177***	7.060***	11.062***	6.530***	8.242***	8.493***	8.466***
	(0.100)	(0.167)	(0.166)	(0.109)	(0.094)	(0.392)	(0.148)	(0.116)	(0.309)	(0.076)
σu	0.235***	0.197***	0.185***	0.251***	0.233***	0.202***	0.189***	0.222***	0.180***	0.219***
	(0.005)	(0.004)	(0.006)	(0.006)	(0.007)	(0.015)	(0.012)	(0.007)	(0.020)	(0.002)
σv	0.095***	0.098***	0.080***	0.079***	0.050***	0.086***	0.044***	0.112***	0.187***	0.094***
	(0.004)	(0.003)	(0.005)	(0.005)	(0.005)	(0.010)	(0.008)	(0.005)	(0.014)	(0.002)
λ	2.476***	2.019***	2.297***	3.173***	4.683***	2.339***	4.347***	1.987***	0.958***	2.319***
	(0.007)	(0.006)	(0.010)	(0.010)	(0.010)	(0.021)	(0.017)	(0.011)	(0.032)	(0.004)
Firms	1,006	1,188	295	525	340	62	65	482	113	4076
Obs.	6,294	8,122	2,148	3,314	2,199	467	450	3,428	801	27,223
Wald χ^2	22933.52	15424.03	11395.30	28695.22	16702.40	2637.85	18172.68	19,089.53	2150.98	34678.31

*** p<0.01, ** p<0.05, * p<0.1.

Table 2. Summary of efficiency estimates by industry subsectors

	Material	Capital Goods	Auto Industry	Household Durable	Food & Bev.	Household Personal	Health Equip.	Techno Hardware	Semi-Conductor	All
China
Mean	0.758	0.775	0.801	0.761	0.716	0.798	0.828	0.750	0.841	0.766
Std.Dev.	0.179	0.170	0.157	0.162	0.187	0.125	0.108	0.190	0.075	0.173
Obs	1136	1298	291	406	298	33	63	573	134	4232
Germany
Mean	0.598	0.719	0.717	0.651	0.668	0.622	0.731	0.733	0.793	0.700
Std.Dev.	0.296	0.189	0.221	0.203	0.186	0.144	0.194	0.222	0.165	0.220
Obs	234	572	163	164	53	26	82	180	153	1627
India
Mean	0.723	0.747	0.773	0.726	0.622	0.758	0.759	0.651	0.860	0.720
Std.Dev.	0.226	0.203	0.192	0.213	0.281	0.203	0.167	0.276	0.038	0.228
Obs	2083	1286	409	1122	599	102	16	220	12	5849
Japan
Mean	0.731	0.741	0.773	0.605	0.599	0.754	0.718	0.715	0.824	0.714
Std.Dev.	0.177	0.177	0.165	0.258	0.221	0.164	0.236	0.201	0.119	0.202
Obs	2859	4966	1291	1630	1252	306	290	2456	502	15552
All countries
Mean	0.728	0.746	0.773	0.622	0.667	0.751	0.737	0.717	0.822	0.723
Std.Dev.	0.202	0.182	0.175	0.237	0.239	0.173	0.216	0.207	0.123	0.206
Obs	6312	8122	2154	2202	3322	467	451	3429	801	27260

*** p<0.01, ** p<0.05, * p<0.1.

Table 3. Descriptive statistics

	China	Germany	India	Japan	All countries
Variable	Mean	Mean	Mean	Mean	Mean	Std. Dev.	Min	Max
TD	0.420	0.539	0.543	0.482	0.489	0.207	0.073	0.955
LTD	0.049	0.125	0.132	0.081	0.090	0.107	0.000	0.510
STD	0.256	0.154	0.281	0.247	0.250	0.149	0.010	0.664
Eff.	0.766	0.700	0.720	0.714	0.723	0.205	0.010	0.947
TATO	0.614	1.070	1.075	1.016	0.970	0.478	0.109	2.695
ROA	0.047	0.062	0.079	0.044	0.053	0.063	−0.149	0.268
Cash Ratio	1.035	0.775	0.450	0.820	0.771	1.144	0.007	7.193
Cash Holding	0.215	0.157	0.088	0.177	0.163	0.129	0.003	0.606
Cash Flow	0.048	0.071	0.067	0.056	0.058	0.070	−0.169	0.271
Firm Size	19.876	20.328	17.507	20.093	19.518	1.975	10.266	26.871
Tangibility	0.256	0.216	0.349	0.284	0.289	0.159	0.010	0.730
Investment	0.045	0.049	0.060	0.035	0.043	0.042	0.000	0.230
Life Cycle	0.148	0.153	0.214	0.292	0.244	0.270	−1.009	0.809

*** p<0.01, ** p<0.05, * p<0.1.

Table 4. How firm efficiency relates to debt financing

	STD			TD			LTD
	Pooled OLS	FE	GMM (Abond2)	Pooled OLS	FE	GMM(Abond2)	Pooled OLS	FE	GMM(Abond2)
Dependent	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)
Eff	0.030***	0.133***	0.117***	0.012***	0.082***	0.073***	−0.027***	−0.054***	−0.044***
	(0.003)	(0.006)	(0.008)	(0.003)	(0.006)	(0.007)	(0.002)	(0.004)	(0.005)
ROA	−0.131***	−0.358***	−0.275***	−0.272***	−0.463***	−0.442***	−0.068***	−0.073***	−0.055***
	(0.012)	(0.018)	(0.026)	(0.012)	(0.019)	(0.025)	(0.009)	(0.014)	(0.018)
Cash Flow	−0.120***	−0.080***	−0.106***	−0.102***	−0.058***	−0.093***	−0.092***	−0.069***	−0.032***
	(0.011)	(0.012)	(0.016)	(0.010)	(0.011)	(0.014)	(0.008)	(0.009)	(0.009)
Cash Ratio	−0.013***	−0.023***	−0.035***	−0.012***	−0.030***	−0.039***	−0.001**	0.001	−0.001
	(0.000)	(0.001)	(0.002)	(0.001)	(0.002)	(0.003)	(0.000)	(0.001)	(0.001)
Size	0.001***	−0.007**	0.001	0.003***	0.026***	0.007***	0.002***	0.030***	0.003***
	(0.000)	(0.004)	(0.001)	(0.000)	(0.004)	(0.001)	(0.000)	(0.003)	(0.000)
Tangibility	−0.025***	−0.050***	−0.081***	−0.028***	−0.019	−0.059***	0.018***	0.093***	0.060***
	(0.004)	(0.015)	(0.010)	(0.004)	(0.017)	(0.009)	(0.003)	(0.013)	(0.008)
Investment	0.017	−0.081***	−0.055**	0.238***	0.155***	0.213***	0.269***	0.204***	0.238***
	(0.015)	(0.020)	(0.022)	(0.016)	(0.021)	(0.025)	(0.014)	(0.020)	(0.019)
Debt f(t-1)	0.849***	0.326***	0.481***	0.901***	0.541***	0.730***	0.842***	0.447***	0.682***
	(0.004)	(0.014)	(0.024)	(0.003)	(0.012)	(0.018)	(0.006)	(0.015)	(0.021)
Intercept	0.032***	0.274***	0.105***	0.004	−0.304***	−0.012	−0.011*	−0.541***	−0.030***
	(0.007)	(0.070)	(0.020)	(0.007)	(0.085)	(0.016)	(0.006)	(0.068)	(0.011)
Controls
Firm	No	Yes	No	No	Yes	No	No	Yes	No
Year	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industry	Yes	No	Yes	Yes	No	Yes	Yes	No	Yes
Country	Yes	No	Yes	Yes	No	Yes	Yes	No	Yes
R^2	0.847	0.367		0.921	0.512		0.810	0.317
χ^2/F-test	4465.102	186.927	112.750	10658.997	322.702	344.642	2207.783	151.932	267.465
Sargan test (p-value)			0.000			0.000			0.000
Ar1 (p-value)			0.000			0.000			0.000
Ar2 (p-value)			0.424			0.333			0.861
Firms	4,017	4,017	4,017	4,017	4,017	4,017	4,017	4,017	4,017
Obs.	22,397	22,397	22,397	22,399	22,399	22,399	22,395	22,395	22,395

*** p<0.01, ** p<0.05, * p<0.1.

Table 5. Robust tests with alternative efficiency proxy

	STD			TD			LTD
	Pooled OLS	FE	GMM (Abond2)	Pooled OLS	FE	GMM(Abond2)	Pooled OLS	FE	GMM(Abond2)
Dependent	(10)	(11)	(12)	(13)	(14)	(15)	(16)	(17)	(18)
TATO	0.012***	0.033***	0.018**	0.003**	0.006	−0.031***	−0.003***	−0.014***	−0.014***
	(0.001)	(0.006)	(0.007)	(0.001)	(0.006)	(0.007)	(0.001)	(0.004)	(0.005)
ROA	−0.130***	−0.256***	−0.189***	−0.267***	−0.385***	−0.339***	−0.084***	−0.111***	−0.084***
	(0.012)	(0.019)	(0.024)	(0.012)	(0.020)	(0.026)	(0.009)	(0.014)	(0.018)
Cash Flow	−0.124***	−0.072***	−0.097***	−0.102***	−0.049***	−0.077***	−0.093***	−0.075***	−0.039***
	(0.011)	(0.013)	(0.015)	(0.010)	(0.011)	(0.014)	(0.008)	(0.009)	(0.009)
Cash Ratio	−0.012***	−0.028***	−0.035***	−0.012***	−0.034***	−0.043***	−0.001***	0.003***	−0.001
	(0.000)	(0.002)	(0.002)	(0.001)	(0.002)	(0.003)	(0.000)	(0.001)	(0.001)
Size	0.001***	0.006	−0.001*	0.003***	0.030***	0.002***	0.002***	0.025***	0.003***
	(0.000)	(0.004)	(0.001)	(0.000)	(0.005)	(0.001)	(0.000)	(0.004)	(0.000)
Tangibility	−0.011***	−0.077***	−0.050***	−0.023***	−0.047***	−0.078***	0.010***	0.104***	0.038***
	(0.004)	(0.016)	(0.009)	(0.004)	(0.018)	(0.009)	(0.003)	(0.014)	(0.007)
Investment	0.007	−0.090***	−0.054***	0.235***	0.156***	0.242***	0.273***	0.215***	0.258***
	(0.015)	(0.021)	(0.020)	(0.016)	(0.022)	(0.024)	(0.015)	(0.020)	(0.018)
Debt f(t-1)	0.833***	0.384***	0.568***	0.898***	0.580***	0.793***	0.843***	0.453***	0.705***
	(0.005)	(0.015)	(0.021)	(0.003)	(0.012)	(0.017)	(0.006)	(0.015)	(0.020)
Intercept	0.047***	0.064	0.182***	0.013**	−0.336***	0.133***	−0.034***	−0.464***	−0.052***
	(0.006)	(0.079)	(0.019)	(0.006)	(0.095)	(0.018)	(0.005)	(0.070)	(0.012)
Controls
Firm	No	Yes	No	No	Yes	No	No	Yes	No
Year	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industry	Yes	No	Yes	Yes	No	Yes	Yes	No	Yes
Country	Yes	No	Yes	Yes	No	Yes	Yes	No	Yes
R^2	0.846	0.300		0.921	0.492		0.808	0.301
χ^2/F-test	4457.895	137.336	140.626	10658.557	291.362	353.720	2179.363	129.760	342.115
Sargan test (p-value)			0.000			0.000			0.000
Ar1 (p-value)			0.000			0.000			0.000
Ar2 (p-value)			0.297			0.251			0.785
Firms	4,017	4,017	4,017	4,017	4,017	4,017	4,017	4,017	4,017
Obs.	22,397	22,397	22,397	22,399	22,399	22,399	22,395	22,395	22,395

*** p<0.01, ** p<0.05, * p<0.1.

Table 6. Efficiency and operating cash flows: Probit and Tobit regression

	Positive Cash Flow		Higher Cash Flow
	Probit	Tobit	Probit	Tobit
Eff.	0.632***	0.169***	0.402***	0.304***
	(0.062)	(0.015)	(0.049)	(0.069)
ROA	7.996***	1.923***	10.634***	11.332***
	(0.241)	(0.051)	(0.199)	(0.252)
Lifecycle	0.131***	0.065***	0.115***	0.099**
	(0.028)	(0.008)	(0.027)	(0.045)
Firm Size	0.112***	0.025***	0.034***	0.001
	(0.010)	(0.002)	(0.007)	(0.009)
Cash Flowf(t-1)			0.022***	0.038***
			(0.008)	(0.010)
Cut1_β0/β0	2.200***	−0.009	0.742***	1.437***
	(0.217)	(0.050)	(0.155)	(0.210)
Cut2_β0			1.546***
			(0.155)
Cut3_β0			2.252***
			(0.155)
Cut4_β0			3.076***
			(0.155)
σu/σ^2u	0.356**	0.166***	0.228**	0.617***
	(0.025)	(0.004)	(0.016)	(0.019)
χ^2	2392.462	3187.888	5293.567	3651.090
left-censored observations		4,428		13,484
uncensored observations		22,659		9,149
right-censored observations		0		0
Year	Yes	Yes	Yes	Yes
Industry	Yes	Yes	Yes	Yes
Country	Yes	Yes	Yes	Yes
Firms	4,060	4,060	4,053	4,053
Obs.	27087	27087	22633	22633

*** p < 0.01, ** p < 0.05, * p < 0.1.

Table 7. Moderating role of liquidity

	LTD
	Pooled OLS	FE	GMM(Abond2)
Dependent Var.	(1)	(2)	(3)
Eff.	−0.031***	−0.063***	−0.050***
	(0.003)	(0.005)	(0.005)
Cash Ratio	−0.005***	−0.008***	−0.009***
	(0.001)	(0.002)	(0.002)
Eff X Cash Ratio	0.006***	0.015***	0.009***
	(0.001)	(0.003)	(0.002)
ROA	−0.070***	−0.080***	−0.051***
	(0.009)	(0.014)	(0.017)
FCF	−0.092***	−0.070***	−0.031***
	(0.008)	(0.009)	(0.009)
Size	0.002***	0.030***	0.003***
	(0.000)	(0.003)	(0.000)
Tangibility	0.018***	0.093***	0.055***
	(0.003)	(0.013)	(0.007)
Investment	0.270***	0.206***	0.240***
	(0.014)	(0.020)	(0.018)
Debt f(t-1)	0.843***	0.446***	0.691***
	(0.006)	(0.015)	(0.020)
Intercept	−0.007	−0.529***	−0.024**
	(0.006)	(0.068)	(0.011)
Controls
Firm	No	Yes	No
Year	Yes	Yes	Yes
Industry	Yes	No	Yes
Country	Yes	No	Yes
R^2	0.810	0.320
χ^2/F-test	2164.245	145.638	7550.56
Sargan test (p-value)			0.000
Ar1 (p-value)			0.000
Ar2 (p-value)			0.880
Firms	4,017	4,017	4,017
Obs.	22,395	22,395	22,395

*** p<0.01, ** p<0.05, * p<0.1.

Table 8. Robustness test for moderating role: alternative liquidity measure

	LTD
	Pooled OLS	FE	GMM(Abond2)
Dependent	(4)	(5)	(6)
Eff.	−0.041***	−0.076***	−0.059***
	(0.003)	(0.006)	(0.007)
Cash holding	−0.063***	−0.090***	−0.102***
	(0.010)	(0.018)	(0.017)
Eff X Cash holding	0.082***	0.138***	0.103***
	(0.013)	(0.022)	(0.022)
ROA	−0.069***	−0.078***	−0.055***
	(0.009)	(0.014)	(0.017)
FCF	−0.092***	−0.069***	−0.024***
	(0.008)	(0.009)	(0.009)
Size	0.002***	0.030***	0.003***
	(0.000)	(0.004)	(0.000)
Tangibility	0.017***	0.094***	0.051***
	(0.003)	(0.014)	(0.007)
Investment	0.269***	0.205***	0.243***
	(0.014)	(0.020)	(0.019)
Debt f(t-1)	0.843***	0.445***	0.683***
	(0.006)	(0.015)	(0.020)
Intercept	−0.004	−0.512***	−0.015
	(0.006)	(0.068)	(0.011)
Controls
Firm	No	Yes	No
Year	Yes	Yes	Yes
Industry	Yes	No	Yes
Country	Yes	No	Yes
R^2	0.810	0.321
χ^2/F-test	2171.502	148.369	22526.11
Sargan test (p-value)			0.000
Ar1 (p-value)			0.000
Ar2 (p-value)			0.869
Firms	4,018	4,018	4,018
Obs.	22,396	22,396	22,396

*** p<0.01, ** p<0.05, * p<0.1.

Table 9. Further test for robustness: dynamic panel regression for subsample of country

	LTD
	China	Germany	India	Japan
Dependent Var.	(7)	(8)	(9)	(10)
Eff.	−0.036***	−0.123***	−0.080***	−0.039***
	(0.011)	(0.029)	(0.012)	(0.006)
Cash Ratio	−0.009***	−0.015***	−0.016***	−0.008***
	(0.003)	(0.005)	(0.004)	(0.002)
Eff X Cash Ratio	0.012***	0.016	0.020***	0.008***
	(0.005)	(0.011)	(0.005)	(0.003)
ROA	0.007	0.040	−0.041	−0.098***
	(0.033)	(0.058)	(0.033)	(0.022)
FCF	−0.057***	−0.087***	−0.066***	−0.012
	(0.021)	(0.040)	(0.017)	(0.010)
Size	0.006***	0.000	0.002**	0.002***
	(0.001)	(0.002)	(0.001)	(0.001)
Tangibility	0.005	0.112***	0.067***	0.045***
	(0.012)	(0.034)	(0.014)	(0.009)
Investment	0.179***	0.142*	0.291***	0.224***
	(0.034)	(0.085)	(0.034)	(0.026)
Debt f(t-1)	0.756***	0.686***	0.690***	0.722***
	(0.039)	(0.044)	(0.031)	(0.024)
Intercept	−0.062**	0.095***	0.013	−0.012
	(0.026)	(0.048)	(0.021)	(0.012)
Controls
Firm	No	No	No	No
Year	Yes	Yes	Yes	Yes
Industry	Yes	Yes	Yes	Yes
Country	Yes	Yes	Yes	Yes
χ^2/F-test	2972.362	935.821	3161.969	5063.497
Sargan test (p-value)	0.007	0.000	0.037	0.000
Ar1 (p-value)	0.000	0.000	0.000	0.000
Ar2 (p-value)	0.985	0.463	0.757	0.913
Firms	1,223	207	976	1,611
Obs.	2,911	1,274	4,474	13,736

*** p<0.01, ** p<0.05, * p<0.1.

Table

Variable	Meaning	Definition
TD	Total debt ratio	Total liabilities divided by total assets on balance sheet date
LTD	Long term debt ratio	The ratio of long-term debt to total assets on balance sheet date
STD	Short-term financing	Short-term debts plus trade payables divided by total assets on balance sheet date
Eff.	Firm efficiency	Efficiency scores estimated by SFA with TRE model, regression
ROA	Return on Assets	Earnings before interest and tax (EBIT) for a period divided by total assets at the end of the period.
Size	Firm size	Total assets in million USD. In regression, we use natural logarithm of total assets, ln (asset).
Cash Ratio	Cash ratio	The ratio of cash and short-term investment to total current liabilities, on balance sheet date
Cash Holding	Cash holding	Cash balance deflated by total assets on balance sheet date
Tang.	Asset tangibility	The ratio of net PPE to total assets, on balance sheet date
Cash Flow	Operating cash flow	Net cash flow from operating activities, during the fiscal year deflated by total assets
Investment	Capital expenditures	Capital expenditure during a period deflated by the total assets balance at period end
Life cycle	Firm life cycle	Retained earnings divided by total assets, we follow proxy similar to DeAngelo (2006)

Deangelo, H., Deangelo, L., & Stulz, R. M. (2006). Dividend policy and the earned/contributed capital mix: A test of the life-cycle theory. Journal of Financial Economics, 81(2), 227–254.

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