Multivariate analysis Results 1 General descriptive statistics

1243 regressed individually with the risk factors size, beta and book to market ratio for each sample. The results for the full regression is given in Table 4.10 ABRES sample and Table 4.13 ABSDATCAABSDATA sample. The full regression is: COE = φ + φ 1 Earnings quality + φ 2 CFVR + φ 3 SSVR + φ 4 SIZE + φ 5 β + φ 6 BTMV + δ Similar to the results of previous regressions, apart from risk factors size and book to market, all three measures of earnings quality and substantial shareholders‘ voting rights explained significantly the variation in cost of equity. Thus the significance of each of the earnings quality measures and the substantial shareholders‘ voting rights in explaining cost of equity is distinct and not driven by the underlying inter relationship between the explanatory variables. Table 4.8 COE on each of Risk factors together, ABRES, CFVR and SSVR Intercept Size Market value Beta Book to market Earnings Quality Cash flowvoting rights Substantial Shareholders‘ voting rights Predicted sign -ve +ve +ve +ve -ve -+ve R 2 0.15 0.242 -0.013 -0.001 0.022 8.743 -3.832 0.943 2.96 0.04 0.134 0.339 18.074 1.933 0.00 .137 0.020 11.273 0.777 0.05 0.164 -0.193 17.284 -2.835 1244 Table 4.9 COE on Risk factors and each of ABRES, CFVR and SSVR Intercept Size Market value Beta Book to market Earnings Quality Cash flowvoting rights Substantial Shareholders‘ voting rights Predicted sign -ve +ve +ve +ve -ve -+ve R 2 0.19 0.213 -0.010 -0.00 0.028 0.351 6.948 -2.950 -0.55 3.300 2.102 0.16 0.233 -0.013 -.000 0.020 0.025 7.910 -4.024 -.003 2.861 0.971 0.22 0.270 -0.014 -0.00 0.025 -0.233 9.689 -4.315 -0.260 3.288 -3.545 Table 4.10 COE on Risk factors, ABRES, CFVR and SSVR Intercept Size Market value Beta Book to market Earnings Quality Cash flowvoting rights Substantial Shareholders‘ voting rights Predicted sign -ve +ve +ve +ve -ve -+ve R 2 0.25 0.239 -0.012 -0.002 0.0285 0.291 0.001 -0.208 -3.560 -0.197 3.540 1.848 0.375 -3.503 Table 4.11 COE on each of Risk factors together, aABSDATCA bABSDATA, CFVR and SSVR Intercept Size Market value Beta Book to market Earnings Quality Cash flowvoting rights Substantial Shareholders‘ voting rights Predicted sign -ve +ve +ve +ve -ve -+ve R 2 0.17 0.247 -0.013 -0.002 0.025 9.989 -3.864 -0.211 3.512 ABSDATCA a 0.03 0.178 0.009 13.826 2.922 ABSDATA b 0.03 0.174 0.008 14.634 2.721 0.00 0.145 0.008 12.075 0.303 0.04 0.163 -0.160 17.789 -2.495 1245 Table 4.12 COE on Risk factors and each of aABSDATCA bABSDATA, CFVR and SSVR Intercept Size Market value Beta Book to market Earnings Quality Cash flowvoting rights Substantial Shareholders‘ voting rights Predicted sign -ve +ve +ve +ve -ve -+ve R 2 ABSDATCA a 0.19 0.256 -0.010 -0.003 0.0294 0.008 9.982 -2.945 -0.249 3.778 2.531 ABSDATA b 0.19 0.255 -0.010 -0.005 0.029 0.007 9.769 -2.887 -0.437 3.693 2.089 0.17 0.241 -0.014 -0.002 0.024 0.019 9.615 -3.929 -0.208 3.513 0.750 0.232 0.274 -0.014 -0.005 0.028 -0.210 10.812 -4.368 -0.519 3.896 -3.403 Table 4.13 COE on Risk factors, aABSDATCA b ABSDATA, CFVR and SSVR Intercept Size Market value Beta Book to market Earnings Quality Cash flowvoting rights Substantial Shareholders‘ voting rights Predicted sign -ve +ve +ve +ve -ve -+ve R 2 ABSDATCA a 0.25 0.278 -0.011 -0.005 0.031 0.006 0.004 -0.194 10.777 -3.508 -0.525 4.161 2.072 0.183 -3.510 ABSDATA b 0.25 0.280 -0.011 -0.007 0.032 0.006 0.000 -0.200 10.655 -3.288 -0.707 4.129 1.889 0.004 -3.590

5. Discussion Conclusion

A caveat is in order for the small sample size. As described in section 3.2 the sample size is reduced a number of times by the lack of information to estimate the variables. Even though the final sample size is sufficient for the statistical analyses employed, the statistical inference made is somewhat limited for generalization. The results shed some light on the relationships studied and provide some evidence to 1246 support the hypotheses tested. Future research that includes more companies and years is needed to provide a robust set of results. The hypothesized relationship between cash flowvoting rights and cost of equity is not supported. The comparison between Claessens 1998b sample and the samples under study provides an insight why this is so. Table 4.5 indicates that even the minimum voting rights found in the samples in this study is quite close to the mean of 28 in Claessens 1998b study. Seventy five percent of companies in the samples have ultimate controlling party with voting rights above 3638. Similarly the mean cash flow rights in all samples in this study are almost twice that reported in Claessens 1998b. 75 of the companies have ultimate controlling party with cash flow rights above 28. Similar pattern is observed in Fan and Wong 2002 whose study includes 177 Malaysian companies. The mean voting rights is 31 whilst the mean cash flow rights is reported to be 26. As in Claessens et al 1998b study the reported mean CFVR is 85. Further both Claessens et al 1998b and Fan and Wong 2002 capped the voting rights at 50. They stopped analyzing the voting rights of the ultimate controlling party once the voting rights breaches 50. So the maximum voting rights for the companies in the sample is 50. Certainly the off setting effect of increasing cash flow rights and increasing voting rights is complex and merit more research. Previous research such as Claessens 1998b found that at a higher level of control the tendency to expropriate, which is expected in information asymmetry situations, is higher. However the insignificant result in this study suggests that even though the disparity between cash flow and voting rights exists, at higher level of control and even higher level of cash flow, market does not price the disparity because the ultimate controlling party is not expected to expropriate or inhibit information as the cash consequence of his action is more significant.