Addressing endogeneity concern
| Dependent variable: r_avg | ||||||||
|---|---|---|---|---|---|---|---|---|
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | |
| All variables are measured at changes | Earnings quality | Earnings quality | Internal control deficiency | GMM | 1st stage Heckman 2-stage regression (dependent variable = EarlyAdopt) | 2nd stage Heckman 2-stage regression | Diff-in-diff Analysis | |
| ETHICS | −0.391*** (−5.98) | −0.291** (−2.41) | −0.301*** (−2.48) | −0.379*** (−3.20) | −0.002** (−1.98) | −0.003* (−1.75) | ||
| NonEarlyAdopt | 0.007*** (5.52) | |||||||
| PostSOX | 0.011*** (5.08) | |||||||
| NonEarlyAdopt x PostSOX | −0.005** (−2.15) | |||||||
| BETA | 0.256 (0.78) | 0.211 (1.45) | 0.203 (1.40) | 0.292** (2.14) | 0.002* (1.82) | −0.389*** (−4.68) | 0.014*** (2.88) | 0.005*** (3.15) |
| SIZE | 0.250*** (7.68) | −0.246** (−2.34) | −0.250** (−2.37) | −0.437*** (−4.44) | −0.001* (−1.76) | 0.244*** (7.69) | 0.001 (0.45) | −0.005*** (−8.56) |
| BTM | −0.094 (1.23) | 1.095*** (9.58) | 1.096*** (9.57) | 0.663*** (7.81) | 5.716*** (4.77) | 0.235*** (5.60) | 0.007*** (2.76) | 0.004*** (3.29) |
| LEV | 0.238 (1.12) | −1.709** (−2.23) | −1.703** (−2.22) | −0.625 (−0.92) | −0.012** (−2.00) | −0.279 (−0.97) | −0.069*** (−3.92) | 0.025*** (7.44) |
| LTG | 4.126** (1.86) | 6.221*** (3.57) | 6.438*** (3.704) | 8.759*** (5.91) | 0.086*** (5.26) | −1.420* (−1.76) | 0.445*** (11.10) | −0.033*** (−8.84) |
| DISP | 0.408** (2.00) | 1.359*** (5.48) | 1.425*** (5.76) | 1.518*** (6.13) | 0.030*** (6.56) | 1.277* (1.78) | −0.249*** (−2.71) | 0.098*** (2.68) |
| DIV | 0.019 (1.54) | −0.007 (−0.42) | −0.007 (−0.38) | −0.011 (−0.60) | −0.015*** (−4.48) | −0.142*** (−5.41) | 0.002* (1.76) | −0.009*** (−12.11) |
| GOV | −0.047 (0.68) | 0.089 (0.43) | 0.101 (0.49) | −0.065 (−0.34) | 0.002 (0.28) | |||
| CSR | −0.079 (0.98) | 0.042 (1.06) | 0.038 (0.96) | 0.062 (1.59) | −0.002 (−1.53) | |||
| ACCR1 | 7.707*** (3.56) | |||||||
| ACCR2 | 3.846*** (2.83) | |||||||
| ICD | 0.155 (0.12) | |||||||
| Lag (r_AVG) | 0.147*** (5.33) | |||||||
| IndAvgAdopt | 0.439*** (2.46) | |||||||
| Inverse Mills Ratio | −0.147 (−0.37) | |||||||
| N | 1,905 | 1,926 | 1,926 | 420 | 1,905 | 2,207 | 2,207 | 7,689 |
| R2 | 1.00% | 10.27% | 10.05% | 9.02% | 11.5% | 8.95% | 17.97% | |
| Dependent variable: | ||||||||
|---|---|---|---|---|---|---|---|---|
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | |
| All variables are measured at changes | Earnings quality | Earnings quality | Internal control deficiency | GMM | 1st stage Heckman | 2nd stage | Diff-in-diff Analysis | |
| −0.002** (−1.98) | ||||||||
| 0.007*** (5.52) | ||||||||
| 0.011*** (5.08) | ||||||||
| 0.256 (0.78) | 0.211 (1.45) | 0.203 (1.40) | 0.292** (2.14) | 0.002* (1.82) | −0.389*** (−4.68) | 0.014*** (2.88) | 0.005*** (3.15) | |
| 0.250*** (7.68) | −0.246** (−2.34) | −0.250** (−2.37) | −0.437*** (−4.44) | −0.001* (−1.76) | 0.244*** (7.69) | 0.001 (0.45) | −0.005*** (−8.56) | |
| −0.094 (1.23) | 1.095*** (9.58) | 1.096*** (9.57) | 0.663*** (7.81) | 5.716*** (4.77) | 0.235*** (5.60) | 0.007*** (2.76) | 0.004*** (3.29) | |
| 0.238 (1.12) | −1.709** (−2.23) | −1.703** (−2.22) | −0.625 (−0.92) | −0.012** (−2.00) | −0.279 (−0.97) | −0.069*** (−3.92) | 0.025*** (7.44) | |
| 4.126** (1.86) | 6.221*** (3.57) | 6.438*** (3.704) | 8.759*** (5.91) | 0.086*** (5.26) | −1.420* (−1.76) | 0.445*** (11.10) | −0.033*** (−8.84) | |
| 0.408** (2.00) | 1.359*** (5.48) | 1.425*** (5.76) | 1.518*** (6.13) | 0.030*** (6.56) | 1.277* (1.78) | −0.249*** (−2.71) | 0.098*** (2.68) | |
| 0.019 (1.54) | −0.007 (−0.42) | −0.007 (−0.38) | −0.011 (−0.60) | −0.015*** (−4.48) | −0.142*** (−5.41) | 0.002* (1.76) | −0.009*** (−12.11) | |
| −0.047 (0.68) | 0.089 (0.43) | 0.101 (0.49) | −0.065 (−0.34) | 0.002 (0.28) | ||||
| −0.079 (0.98) | 0.042 (1.06) | 0.038 (0.96) | 0.062 (1.59) | −0.002 (−1.53) | ||||
| 7.707*** (3.56) | ||||||||
| 3.846*** (2.83) | ||||||||
| 0.155 (0.12) | ||||||||
| Lag ( | 0.147*** (5.33) | |||||||
| 0.439*** (2.46) | ||||||||
| 1,905 | 1,926 | 1,926 | 420 | 1,905 | 2,207 | 2,207 | 7,689 | |
| 1.00% | 10.27% | 10.05% | 9.02% | 11.5% | 8.95% | 17.97% | ||
This table presents the regression results of regressing the average cost of equity (r_AVG) on ETHICS and control variables. The sample period in Models 1, 2, 3, 5, 6 and 7 is between 2004 and 2012, in Model 4 is between January 2004 and October 2005, and in Model 8 is between 1996 and 2012. The dependent variable in Model 6 is EarlyAdopt. Robust standard errors are clustered by firms. t-statistics are reported inside the parentheses. ***, **, and * indicate statistical significance at the 0.01, 0.05, and 0.10 level, respectively. A more detailed description of the variables is in Appendix A