The Predicted Relationship between Leverage and Shareholder Concentration of Corporations in the EU-15

Source: Authors’ calculations.

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35

0 20 40 60 80 100

Predicted Leverage

Table 1: Size of Capital Markets

Source: IMF, IFS. Data are for 2003.

Country

Bank deposits to GDP

Stock market capitalization to GDP

Private bond market cap. to GDP

Public bond market cap.

to GDP

Austria 0.8086 0.1441 0.3137 0.3173 Belgium 0.7339 0.575 0.485 10.096 Denmark 0.5246 0.4437 10.459 0.5536 Finland 0.5039 0.8681 0.2964 0.2822 France 0.6056 0.5583 0.46 0.3829 Germany 0.736 0.3682 0.4937 0.2769 Greece 0.6097 0.4531 0.0204 0.7118 Ireland 0.606 0.6072 0.0709 0.3304 Italy 0.535 0.3179 0.336 0.9027 Netherlands 0.8336 0.9596 0.369 0.453 Portugal 0.8763 0.3009 0.1729 0.402 Spain 0.6748 0.5026 0.1696 0.419 Sweden 0.4006 0.8313 0.4844 0.4384 United Kingdom 0.8631 12.997 0.156 0.2993

EU-15 0.6612 0.5873 0.3481 0.4842

Bulgaria 0.3702 0.0445

Croatia 0.3819 0.1493

Czech Republic 0.5785 0.2114 0.0412 0.2234

Estonia 0.2304 0.2937

Hungary 0.375 0.1657 0.0149 0.2651

Latvia 0.1829 0.0627

Lithuania 0.158 0.124

Poland 0.2876 0.0999 0 0.2819

Romania 0.1907 0.0384

Slovak Republic 0.5359 0.062 0 0.1198

Slovenia 0.3634 0.1217

CEE-Total 0.3293 0.122 0.014 0.2225

Developing -

Total 0.4854 0.6461 0.074 0.1888 Japan 10.598 0.7305 0.4409 0.6913 United States 0.5602 10.791 0.9049 0.5135

Table 2: Debt Ratios

Country

Long-term debt ratio

Short-term debt ratio

Total debt ratio

Austria 0.2632 0.3139 0.5771

Belgium 0.2227 0.3283 0.551

Denmark 0.2012 0.3238 0.525

Finland 0.2087 0.3112 0.5199

France 0.3015 0.3904 0.692

Germany 0.3813 0.3031 0.6844

Greece 0.203 0.3834 0.5863

Ireland 0.1412 0.3204 0.4616

Italy 0.2841 0.3686 0.6526

Netherlands 0.2577 0.3495 0.6072

Portugal 0.3373 0.3978 0.7351

Spain 0.2536 0.3479 0.6016

Sweden 0.2619 0.2982 0.5601

United Kingdom 0.3407 0.3358 0.6765

EU-15 0.2646 0.3427 0.6073

Bulgaria 0.1574 0.3407 0.4981

Croatia 0.1697 0.2656 0.4353

Czech Republic 0.0941 0.2934 0.3875

Estonia 0.0645 0.3029 0.3674

Hungary 0.0603 0.3152 0.3756

Latvia 0.0888 0.1847 0.2735

Lithuania 0.1655 0.2373 0.4019

Poland 0.0957 0.4821 0.5805

Romania 0.0512 0.3393 0.3905

Slovak Republic 0.0958 0.3489 0.4447

Slovenia 0.0536 0.2755 0.329

CEE-Total 0.1029 0.3043 0.4074

Developing-Total 0.2221 0.2968 0.5191

Japan 0.2975 0.3908 0.6883

United States 0.4209 0.2079 0.6288

Source: OSIRIS database. Data are for 2003. The long term-debt is defined as the ratio of the long-term debt to total assets. The short-long-term debt is measured as the ratio of the short-long-term debt to total assets. Total debt is the ratio of the sum of the long-term and short-term debt divided by total assets.

Table 3: Debt Ratios by Years

Region 2001 2002 2003 2004 Total

EU-15

Long-term debt 0.2638 0.2677 0.2767 0.2646

Short-term debt 0.3472 0.3353 0.3353 0.3427

Total debt 0.611 0.603 0.612 0.6073

CEE

Long-term debt 0.0908 0.0983 0.113 0.1104 0.1029 Short-term debt 0.3207 0.2989 0.2982 0.3011 0.3043

Total debt 0.4112 0.3978 0.4112 0.4116 0.4074

Developing

Long-term debt 0.2191 0.239 0.211 0.2221

Short-term debt 0.291 0.2952 0.3026 0.2968

Total debt 0.5111 0.5341 0.5135 0.5191

United States

Long-term debt 0.4549 0.4979 0.4741 0.4209

Short-term debt 0.2191 0.203 0.1897 0.2079

Total debt 0.674 0.7009 0.6638 0.6288

Japan

Long-term debt 0.2977 0.3052 0.2897 0.2975

Short-term debt 0.395 0.3962 0.381 0.3908

Total debt 0.6927 0.7013 0.6707 0.6883

Source: OSIRIS database.

Long-term debt Lending rate Tax_rate Bank deposits/GDPCPI Real GDP growth

Index of institut- iona quality U region ng-term debt 1 Lending rate -0.5212 1 0 rate 0.6309-0.3993 1 0.00220.0656 ank deposits/GDP0.699 -0.3015 0.63561 0 0 0.0008 flation rate -0.3639 0.5734-0.0882 -0.1214 1 0.00130 0.682 0.0743 eal GDP growth -0.4479 0.2481-0.8419 -0.4792 0.10641 00010.01840 0 0.2919 dex of stitutional quality 0.5744-0.4243 0.46850.5608-0.1897 -0.4116 0 0.021 0 0.00430 re price change -0.3121 0.3354-0.463-0.3593 0.20970.4324-0 009 0 0.03 0 0.00240

Table 4 continued: Correlation Matrix Long-term debt Lending rate Tax_rate Bank deposits/GDPCPI Real GDP growth

Index of institut- iona quality EU-15 Long-term debt 1 Lending rate -0.0511 1 0.781 Tax rate 0.54540.27571 0.06660.362 Bank deposits/GDP 0.4746 -0.2162 0.21671 0.003 0.02460.4568 Inflation rate 0.03190.3796-0.3448 0.20541 0.85110 0.22730.0256 Real GDP growth -0.3128 0.1416-0.8063 -0.0815 0.59911 0.05950.32680.00050.55060 Index of institutional quality -0.1929 -0.3911 -0.2835 -0.0451 -0.4229 -0.1098 0.25270 0.32610.52620 0.4206 Share price change 0.10940.35860.1876-0.0750.12670.1082-0 0.51920.00010.52060.29090.15740.4273

Long-term debt Lending rate Tax_rate Bank deposits/GDPCPI Real GDP growth

Index of institutio nal quality ng-term debt 1 ding rate -0.0362 1 8341 e -0.4744 -0.05 1 197 0.8983 k posits/GDP -0.0305 -0.0222 0.51551 856 0.83550.1273 flation rate -0.3858 0.592 0.1587-0.0635 1 01670 0.66150.5324 owth 0.2768 -0.3363 -0.6733 -0.4654 -0.2517 1 09250.03380.03280.00150.0993 dex of stitutional ality -0.4173 -0.2397 0.17080.1569-0.1983 0.0571 00910.02290.637 0.06710.04910.7127 re price ge 0.22170.1788-0.5985 -0.1925 0.17020.469 -0 22260.13290.117 0.04110.12880.00390. Note: For data sources and definitions of the variables, see Section 3.

Table 5: Institutional Influences on Leverage

The table presents the coefficients of a regression equation estimated for the full sample of EU-15 and new member state companies, and for separate samples of EU-15 and new member state companies. The dependent variable is the long-term debt to total assets ratio. The independent variables are as follows. Institutional quality is measured as the sum of six measures: (1) Voice and Accountability, (2) Political Stability, (3) Government Effectiveness, (4) Regulatory, (4) Quality, (5) Rule of Law, and (6) Control of Corruption. The indicators are constructed using an unobserved components methodology described in detail in Kaufmann, Kraay and Mastruzzi (2005). Bank deposits/GDP is the ratio of bank deposits to GDP.

Lending rate is the average country annual lending rate. Tax rate is measured by the tax rates compiled by the KPMG’s annual survey of corporate tax rates (KPMG, 2003). The absolute values of the t-statistics are under the coefficients.

Full

Sample EU-15 NMS Full

Sample EU-15 NMS Institutional

quality 0.006 -0.039 -0.146

0.12 -0.64 -6.48

Bank

deposits/GDP 0.176 0.089 0.299

2.34 1.08 1.50

Lending rate -0.015 -0.022 0.000 -0.011 -0.013 -0.006

-1.59 -1.39 -0.07 -1.76 -0.97 -0.68

Tax rate 0.006 0.006 -0.001 0.003 0.005 -0.009

2.39 2.19 -0.64 1.14 2.03 -2.06

Observations 20 11 9 20 11 9

Adj-R-Sq. 0.46 0.22 0.87 0.59 0.30 0.19

Source: Authors’ calculations.

Table 6: Ownership Categories and Leverage

This table presents comparisons of long-term debt levels as a fraction of total assets across direct ownership categories. We define a company as state-owned, if the largest direct shareholdings are held by the state and are at least 20%. Other types of ownership are defined similarly. Dispersed companies are those with no shareholder holding 20% of the outstanding shares. The comparisons are based on the means of the long-term debt ratio. For example, the state owned firms in the old member states (EU-15) have a 34.1% long-term debt ratio, whereas the same ratio is 27.7% for all other types of firms in the EU-15. The signs between the two means indicate the statistical significance of the debt levels (>: significantly greater at the 5% or better, <: significantly smaller at the 5% or better, and ≈:

insignificantly different at the 5% significance level or better).

EU 15 NMS

State 0.341 > 0.277 0.237 > 0.141

Financial 0.292 ≈ 0.277 0.105 ≈ 0.144

Family 0.235 < 0.284 0.164 ≈ 0.147

Corporations 0.279 ≈ 0.276 0.145 ≈ 0.140

Mutual

Funds 0.302 > 0.277 0.152 ≈ 0.142

Dispersed 0.283 ≈ 0.275 0.097 < 0.150

Source: Authors’ calculations.

Table 7: Summary Statistics by Country in the EU-15 and NMS Samples ROA Size Tangibility Sales growth SH1 Country MeanSD Mean SD MeanSD MeanSD Mean Austria 0.0460.09512.8691.716 0.3480.2120.2030.24350.01 Belgium 0.0480.07512.5521.499 0.3270.2620.2260.30245.19 Denmark 0.0340.11712.2511.458 0.3260.1810.1680.41926.91 Finland 0.0360.11312.3551.813 0.3090.2080.2760.38130.00 France 0.0620.04215.3191.091 0.2250.1630.1930.15744.77 Germany 0.0630.05914.8741.111 0.2940.1670.2230.52646.11 Greece 0.0730.06212.2181.244 0.3130.1800.2960.42742.54 Ireland 0.1261.36811.8971.972 0.2850.2520.2890.64719.51 Italy 0.0470.05614.0851.126 0.2750.1950.2780.30540.52 Netherlands0.0470.08313.8381.437 0.2360.1860.1590.24427.81 Portugal 0.0100.09712.7561.723 0.3210.1780.1730.17639.72 Spain 0.0640.05113.5771.563 0.3560.2040.4111.40229.33 Sweden 0.0320.11613.1711.558 0.2550.2000.2070.23127.30 United Kingdom0.0730.06715.4720.456 0.3460.2750.1610.24611.51 EU-15 0.0520.28213.5201.812 0.2960.2090.2070.27134.36

mary Statistics by Country in the EU-15 and NMS Samples ROA Size Tangibility Sales growth SH1 y MeanSD Mean SD MeanSD MeanSD Mean SD 60.0729.682 0.904 0.5090.1900.2070.50163.620 70.06311.0610.913 0.5630.2550.2030.36054.842 0.0440.09512.1591.202 0.5620.2110.1490.34858.26332.305 00.08810.3010.505 0.3010.2180.2630.24454.19923.5 y 0.0520.07311.7681.720 0.4310.1850.2640.89334.26126.7 20.1269.929 1.414 0.5470.1720.1890.53551.34718.5 40.06310.8771.274 0.5980.1830.4280.88559.97324.6 30.06211.2180.898 0.3680.1940.1380.41737.11820.4 mania 0.0710.0949.985 1.122 0.5050.1420.2500.44460.26524.7 40.0599.085 1.275 0.5230.1790.2290.27354.01723.9 80.04110.7841.189 0.4730.1360.2410.22436.96332.4 0.0400.07310.4841.428 0.4990.2070.2140.45552.79526.9 NMS0.0480.22812.3862.230 0.3710.2300.2080.36639.47 25.8 thors’ calculations.

Table 8: The Determinants of Leverage in the EU-15 and the New Member States

The table presents the coefficients of a regression equation estimated for the full sample of EU-15 and new member state companies, and for separate samples of EU-15 and new member state companies. The dependent variable is the long-term debt to total assets ratio. The independent variables are defined as follows: ROA is the return on assets, defined as the ratio of earnings before interest and taxes to total assets. Size is the (natural) logarithm of total assets. Tangibility is the ratio of total fixed assets to total assets. Sales growth is the percentage change in sales.

All equations include a full set of time, industry and country dummies. The absolute values of the t-statistics are under the coefficients.

Full Sample EU-15 NMS

ROA -0.135 -0.167 -0.152

(4.55) (4.59) (2.89)

Size 0.034 0.039 0.009

(17.24) (17.16) (2.32)

Tangibility 0.132 0.181 0.028

(9.68) (10.55) (1.19)

Sales Growth -0.0002 -0.0002 -0.0035

(2.08) (2.18) (1.00)

Country dummies Yes Yes Yes

Time dummies Yes Yes Yes

Industry dummies Yes Yes Yes

Observations 2998 1874 1124

Adj- R-Sq 0.43 0.38 0.18

Source: Authors’ calculations.

wnership Identity e 9 presents the coefficient estimates of our basic model to explain the variation in the long-term debt to asset ratio panies under State ownership, Financial company ownership, Family ownership, Non-financial corporate ownership, M nd ownership and with dispersed ownership structures. For each ownership category, we report the results for the full sample (All), e sample of companies in the EU-15 countries (EU-15), and for the NMS. All equations include a full set of time and indu ies, with the exception of state owned companies in the NMS sample, where we drop the industry dummies due to the num degrees of freedom in such a small sample. The (absolute values) of the t-statistics are reported under the coefficients. The cut int for defining ownership identity is 20%.

Table 10: Non-Linear Impact of Shareholder Concentration Family Corporate EU-15 NM EU-15 NM OLS IV OLS IV OLS IV OLS IV SH1 0.0050.00440.0013 -0.001-0.0016-0.0027-0.0012 (2.88)(1.73)(0.63) (0.65)(1.84)(1.67)(0.89) SH1_2 -0.000054-0.00004-0.00001 0.000010.000010.000020.00001-0.000 (2.81)(1.50)(0.79) (0.43)(1.99)(1.67)(1.16) ROA -0.267-0.2300.256 0.056-0.340-0.253-0.328 (2.61)(2.41)(1.26) (0.21)(5.07)(3.14)(3-98) Size 0.0480.046-0.003 -0.00080.0380.042-0.0005-0.002 (8.88)(11.54)(0.23) (0.06)(11.76)(14.84)(0.07) Tangibility 0.2100.1520.283 0.2130.2440.287-0.049 (3.30)(2.95)(3.64) (3.79)(8.88)(11.07)(1.28) Sales Growth -0.009-0.016-0.008 0.014-0.0002-0.0003-0.008-0.001 (0.84)(2.67)(0.54) (0.85)(2.77)(11.54)(1.27) Obs. 239239136 136748748523 Adj. R-Sqd 0.410.3720.30 0.100.380.340.13 Source: Authors’ calculations.

Appendix Table 1A: Ownership Structure by Country and Region (the Fraction of Companies under the Six Ownership Categories in Each Country) Country State Financial Families Corporate Mutuals Dispersed Austria 7.55%3.77% 17.12%50.00%0.00% Belgium 0.00%17.28% 4.48%40.23%5.95% Denmark 1.51%2.26% 8.68%34.34%13.96% Finland 6.11%1.93% 14.24%31.19%3.54% France 0.58%4.09% 7.02%38.30%5.85% Germany 1.24%4.95% 15.10%40.87%2.48% Greece 0.00%2.13% 37.56%34.57%4.26% Ireland 0.00%0.00% 11.84%19.67%6.56% Italy 11.18%15.59% 7.54%45.29%0.88% Netherlands 2.45%7.36% 3.75%25.15%1.53% Portugal 0.00%8.79% 9.89%53.85%5.49% Spain 0.00%3.85% 6.59%49.18%1.10% Sweden 0.28%3.35% 18.31%28.77%13.41% United Kingdom0.00%3.14% 1.69%7.06%2.75% Total 2.19%6.21%10.59%35.70%4.95% Bulgaria 0.00%2.27% 9.92%84.42%0.00% Croatia 3.67%1.33% 18.90%49.00%12.00% Czech Republic 0.00%11.54% 0.00%57.69%11.54% Estonia 0.00%0.00% 33.33%66.67%0.00% Hungary 0.00%0.00% 0.00%42.86%14.29% Latvia 0.00%0.00% 26.67%63.64%0.00% Lithuania 0.00%6.45% 9.38%74.19%3.23% Poland 4.70%1.88% 20.49%42.01%3.76% Romania 2.33%4.65% 5.00%63.95%12.79% Slovak Republic 0.00%0.00% 0.00%100.00%0.00% Slovenia 0.00%0.00% 0.00%46.88%0.00% Total 1.90%2.85%9.92%60.80%5.64%

egression Results by Individual Countries in the EU-15 Sample AT BE DK FI FR DE GR IE IT NL PT ES SE A 0.146-0.304-0.094-0.071-0.801-0.636 -0.4230.350-0.3070.119-0.432-0.468-0.135 -2.01-0.86-0.83-2.64-3.66 -1.392.67-1.441.05-2.34-2.23-0.94 0.0320.0120.0120.0600.006 0.0660.0380.0440.0640.0830.0480.025 3.951.392.245.380.81 4.822.724.929.265.785.552.83 0.2330.1960.2450.2470.2760.300 -0.068-0.1460.3040.079-0.2000.2350.163 3.903.184.413.714.17 -0.48-1.004.961.26-1.793.842.01 rowth-0.076-0.0010.0250.0270.015-0.013 -0.0130.006-0.004-0.071-0.1110.0170.000 -1.341.131.300.21-0.90 -1.250.17-0.54-1.88-1.162.53-1.69 -0.248-0.024-0.012-0.6600.256 -0.555-0.235-0.408-0.642-0.625-0.458-0.120 -2.39-0.20-0.17-3.572.18 -3.30-1.34-3.13-6.51-3.31-3.95-0.98 155134155154167 926615818090169169 0.620.380.40.590.440.55 0.530.60.50.480.520.450.35

egression Results by Individual Countries in the NMS Sample BG HR CZEE HU LV LT PL RO SK SI -0.394-0.331-0.371-0.651-0.1170.087-0.0770.113-0.281-0.325 -2.04-1.76-3.43-1.54-0.620.75-0.260.79-1.56-2.24 0.0040.008-0.0060.4000.007-0.0550.019-0.0250.043-0.019 0.230.69-0.412.070.4-1.320.69-2.642.91-2.04 -0.1530.0610.2920.5330.412-0.303-0.0680.297-0.017-0.134 -2.021.073.431.231.9-1.32-0.426.1-0.13-2.19 -0.007-0.001-0.004-0.150-0.0020.012-0.0070.0080.0160.062 -0.71-0.12-0.16-1.81-0.150.37-0.240.660.51.99 0.2310.0600.032-4.062-0.1870.848-0.0270.257-0.3510.344 1.420.430.17-2.03-1.071.55-0.082.39-2.013.39 235182921722315816997146 0.070.440.350.790.270.510.090.290.100.15

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