Speaker: Raffaele Miniaci, University of Brescia
The use of conditional quantile regression (CQR) has become common in empirical corporate finance to investigate how the determinants of companies’ choices vary according to their financial structure (e.g. Chay et al. 2015, J. Corp. Fin.; Fattouh et al. 2005, J. Dev. Eco; Gu et al. 2015, Int. Tax Pub. Fin.). The use of CQR makes apparent the heterogeneity of responses; however, such estimates are policy relevant only under restrictive conditions. In this paper, we suggest how to overcome the issue by considering the unconditional quantile partial effects. We extend the approach by Firpo et al. (2009, Econometrica) to panel data with correlated random effects and apply the method to a sample of European foreign owned subsidiary companies. The results show that the impact of taxes on subsidiaries’ indebtedness is positive for all the quantiles of the distribution of leverage. Instead, the effect of profitability is asymmetric: for low leveraged companies, an increase in the Return on Assets encourages borrowing, whereas the converse is true for higher quantiles of the distribution. The latter result suggests that both the Pecking order and Trade-off theories of capital structure are potentially valid, although for different domains of companies.