Determining the key factors of corporate leverage in Indian manufacturing firms using dynamic modelling

Figures & data

Table 1. Variable Description

Variable	Definition
Leverage	Book value of total debt/ book value of total assets
Board size	Total Number of directors on the board
Board independence	Number of independent directors of total directors
Gender Diversity	Dummy of 1 is assigned to a company if the women is present on the board, otherwise 0
CEO duality	Dummy variable that takes value “1” when the CEO is also chairman of the board else it is given “0”
Audit Quality	Dummy variable 1 if the company is audited by BIG4 companies, otherwise 0
CEO pay	Natural log of total remuneration paid to the CEO of a company
Ownership structure	Percentage of equity held by promoters and institutions
Firm Size	Logarithmic value of total assets
Growth	Sales at (t + 1- sales at t-1)
Non-debt tax Shield	Depreciation divided by total assets
Profitability	Ratio of earnings before interest and tax divided by total assets
Tangibility	Property, plant& equipment as a proportion of total assets
Aggregate Governance Quality	The principal component analysis factor obtained from the seven governance variables that is, Board Size, Board Independence, Gender Diversity, CEO duality, Audit quality, CEO pay, Ownership Structure Their loadings are 0.557, −0.0068, 0.3914, 0.6763, −0.1419 0.4551, and −0.4769 respectively.

Source: Based on prior literature

Table 2. Descriptive Statistic

Variable	Obs	Mean	Std.Dev.	Min	Max
Leverage	1190	1.009	3.149	0	29.08
Board Size	1190	9.237	2.771	3	22
Board Independence	1190	0.534	0.13	0.143	1
Gender diversity	1190	0.739	0.44	0	1
Audit Quality	1190	0.234	0.424	0	1
CEO duality	1190	0.374	0.484	0	1
CEO Pay	1190	3.513	1.361	−3.182	7.179
Ownership concentration	1190	55.699	12.679	26.73	88.58
Growth	1190	0	0	0	0.001
Non-debt tax Shield	1190	.136	0.803	0	10.081
Firm Size	1190	10.626	1.428	6.571	16.09
Profitability	1190	.22	0.291	−0.204	4.104
Tangibility	1190	1.068	6.506	0	93.318
CGI	1190	0	1	−2.285	2.593

Source: Authors calculations

Table 3. Correlation Matrix

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)		(13)
(1) leverage	1.000
(2) Board Size	−0.167	1.000
(3) Board Independence	0.081	−0.226	1.000
(4) Gender diversity	−0.033	0.101	−0.002	1.000
(5) Audit quality	0.004	0.035	0.034	−0.091	1.000
(6) CEO duality	0.019	0.152	0.001	0.064	−0.128	1.000
(7) CEO pay	0.015	0.066	0.057	0.031	0.087	0.150	1.000
(8) Ownership	0.043	−0.091	−0.216	−0.044	−0.021	−0.124	−0.072	1.000
(9) Growth	0.082	−0.202	−0.062	−0.136	−0.033	−0.043	−0.266	0.068	1.000
(10) Non debt tax Shield	0.304	−0.071	0.004	−0.036	−0.039	−0.090	−0.027	−0.019	0.169	1.000
(11) Firm Size	−0.150	0.369	0.045	0.089	−0.029	0.118	0.279	−0.085	−0.596	−0.192	1.000
(12) Profitability	0.046	−0.125	0.030	−0.062	−0.078	−0.052	−0.046	−0.031	0.135	0.119	−0.317	1.000
(13) Tangiblity	0.172	−0.046	−0.025	−0.026	−0.060	−0.070	−0.025	0.008	0.122	0.795	−0.170	0.080		1.000

Table 4. Variance Inflation Factor

	VIF	1/VIF
Firm Size	3.810	0.262
Non Debt Tax Shield	2.800	0.357
Tangibility	2.760	0.362
Audit Fee	2.700	0.370
Sales Growth	1.740	0.575
Board Size	1.340	0.748
CEO pay	1.300	0.772
Profitability	1.210	0.826
Gender Diversity	1.040	0.959
Board Meetings	1.190	0.837
Board Independence	1.150	0.866
ROA	1.140	0.879
OWSC	1.130	0.886
Audit Quality	1.130	0.886
Firm Age	1.120	0.895
CEO duality	1.110	0.899
Mean VIF	1.640

Source: Author’s Calculations

Table 5. Static and dynamic estimates from the data

	(1)	(2)	(3)	(4)
VARIABLES	OLS	Fixed Effect	Sys. GMM	Sys. GMM
Levt−1	0.799***	0.552***	0.770***	0.177***
	(0.0187)	(0.0298)	(0.00992)	(0.00932)
Panel A: Firm Variables
Sales growth	−137.6	−1,946*	−942.8*	−1,478***
	(599.9)	(1,168)	(495.1)	(300.6)
Non-debt-tax-shield	0.842***	0.938***	1.149***	1.374***
	(0.114)	(0.177)	(0.0234)	(0.0270)
Firm size	−0.0906*	−0.481***	−0.0672	−0.906***
	(0.0519)	(0.182)	(0.0993)	(0.223)
Profitability	0.0266	0.0601	0.00495	0.0221
	(0.207)	(0.266)	(0.0540)	(0.0686)
Tangibility	−0.0876***	−0.102***	−0.113***	−0.0899***
	(0.0139)	(0.0147)	(0.00329)	(0.00124)
Year			−0.0158	0.0611**
			(0.0234)	(0.0238)
Panel B: Governance Variables
Board Size			0.0644***
			(0.0212)
Board Independence			1.982***
			(0.310)
Gender Diversity			−0.197
			(0.305)
Audit Quality			−0.00692
			(0.522)
CEO Duality			−0.341**
			(0.144)
CEO Pay			0.0599
			(0.0684)
Ownership Concentration			0.0414***
			(0.0145)
CGI				0.1777***
				(0.331)
Constant	1.130*	5.666***	28.87	−112.9**
	(0.598)	(1.995)	(46.64)	(45.73)
1^st order auto correlation			−2.23**	−2.23**
2^nd order auto correlation			1.00	0.83
Hansen J- Statistic			17.47	36.42
Observations	1,071	1,071	1,071	1,071
R-squared	0.680	0.312
Number of firms		119	119	119

Note: Standard errors in parentheses

*** p < 0.01, ** p < 0.05, * p < 0.1