Economic reforms, corporate governance and dividend policy in sectoral economic growth in Pakistan.
Rehman, Ramizur ; Hasan, Mudassar ; Mangla, Inayat Ullah 等
1. INTRODUCTION
Economic reforms are inevitable for the development of an economy
like Pakistan. During the last two decades, Pakistan has passed through
phenomenal economic changes and reforms. In the 1990's, we had seen
privatisation plans initiated by the government as a major economic
reform. Similarly, to demonstrate the seriousness of the government in
encouraging foreign investment flows in Pakistan; there has been a
perceptible liberalisation of the foreign exchange regime. Allied to
these efforts, the trade regime was opened up and the maximum tariff
rates were cut down to 25 percent with only four slabs and the average
tariff rate was lowered to 14 percent. The financial sector too, was
restructured and opened up to the foreign competition. Foreign and
domestic private banks currently operating in Pakistan have been able to
increase their market share to more than 60 percent of assets and
deposits.
Central to the economic reforms process is a clear progression
towards deregulation of the economy. Prices of petroleum products, gas,
energy, agricultural commodities and other key inputs are mostly
determined by market. Imports and domestic marketing of petroleum
products have been deregulated and opened up to the private sector. More
importantly, taxation reforms have been prominently on the
government's agenda, with no real reforms undertaken. This is
another area where policy makers and business community has innumerable
grievances and dissatisfaction with the arbitrary nature of tax
administration.
The previous military government had introduced a concept of better
economic governance. Transparency, consistency, predictability and
rule-based decision-making had begun to take roots. Discretionary powers
were significantly curtailed. Freedom of press and access to information
has had a, salutary effect on the behaviour of decision makers. The
other pillars of good governance are: (a) devolution of power to the
local governments who will have the administrative and financial
authority to deliver public services to all citizens, and (b) an
accountability process which will take to task those indulging in
corruption through a rigorous process of detection, investigation and
prosecution.
During this earlier period, economic growth was mainly led by
consumer goods, with food and pharmaceuticals showing the strongest
contribution. Intermediate goods--building materials, fertilisers,
industrial chemicals, petroleum products, and other raw material--posted
a speedy recovery. Domestic textile industry has been reshaped in recent
years with growing scope and depth in terms of products and business
strategies. But no matter how obvious the growth is, we unfortunately
cannot measure it since the large part of the sector is undocumented.
More disturbing is investors' disinterest in textile manufacturing
which calls for drastic steps to encourage them. Certainly pessimism
regarding global demand is a major issue hurting investment prospects in
textiles, and due to energy shortage is the most dominant factor in
discouraging additional investments in the sector.
Meanwhile, Pakistan's corporate sector has yet to introduce
good governance reforms and optimal dividend policy. The code of
corporate governance has been introduced in Pakistan in 2002 but only 5
percent companies have adopted governance practices. Similarly, in case
of setting up optimal and consistent dividend policy, only few companies
have their consistent dividend policy. In developed economies, corporate
governance and consistent dividend policy are important parameters for
sustainable economic growth. The dividend policy is always an appealing
topic for academics. There are several studies on this subject, but none
has studied the role of dividend policy and corporate governance in the
presence of economic reforms on sectoral economic growth in Pakistan.
This paper tries to establish a link between economic reforms, dividend
policy, corporate governance and sectoral growth in the presence of
existing pitfalls of the Pakistan's economy. This has not been
addressed in the existing economic literature in Pakistan. This paper
tries to fill this gap for Pakistan's sectoral growth.
2. LITERATURE REVIEW
Good governance is vital for the development of a healthy and
competitive corporate sector. A strong corporate sector boosts
"sustained" and "shared" economic growth, i.e.
growth that can withstand economic shocks and benefit all stake holders.
Countries can, therefore, benefit immensely from corporate governance
framework as a tool to address factors leading to sagging economic
activity. The most important decision, at corporate level, which
emanates from corporate governance mechanism, is the dividend policy.
The equitable distribution of economic resources through board of
directors can be achieved in developing countries like Pakistan which
encourages economic growth. While finance theory largely supports the
irrelevance of dividend policy in perfect capital markets, [Modigliani
and Miller (1961)]; most people regard payout policy as controversial.
Specially, in the presence of taxes and transaction costs, payout policy
is regarded as a puzzle. Nevertheless, most firms do pay dividends.
The overall state of Pakistan's economy is stagnant, because
in recent years Pakistan has encountered broad economic challenges
mainly because of energy crises. The policy-makers have not been able to
implement appropriate policies, which resulted in a sluggish GDP growth.
Critical differences between Pakistan and emerging countries that have
recently adjusted successfully through economic reforms, such as India,
Chile, Brazil and Turkey--lies in Pakistan's inability to grasp the
seriousness of the economic crisis and lack of commitment to the needed
policy reform i.e., poor governance. It would be imperative to know as
to what drove other countries--notwithstanding their political
constraints--to improve their governance and steadfastly implement
difficult, but necessary, policy reforms and, thus, determine what
Pakistan can learn from their experience to improve governance.
Pablo, et al. (2008) investigate the extent of the institution with
better practices of corporate governance is related to the economic
growth in Brazil. The evidence suggested that companies who adopt better
practices of corporate governance have better performances (collect more
benefits) in the economic growth cycle than those companies that do not
adopt them. Sulesa, et al. (2010) found a negative relationship between
investment opportunity set and dividend policy is weaker for firm with
larger board size and larger number of independent directors
representing the board. Arun (2005) investigated the impact of good
governance practices in financial institutions on the economic growth of
a country through financial development in Bangladesh. The role of
corporate governance was found to be significant in the performance of
banking sector in Pakistan in both conventional and Islamic banks
[Rehman, et al. (2010)].
Burki, et al. (2007) suggested that there is an impact of corporate
governance changes on banking efficiencies in Pakistan. Apart from the
financial sector, Rehman, et al. (2010) explored the influence of
corporate governance practices on return on equity in pharmaceutical
sector of Pakistan. The concept of dominance of family business is
characterised in Pakistani markets where they developed as group and
their performance is distinguished from firms which are not under such
group as in the case of Japan. Ramiz, et al. (2012) studied a positive
and significant impact of board size on return on asset and return on
equity in the banking sector of Pakistan. The explanation regarding the
signalling theory given by Bhattacharya (1979) and Williams (1985)
suggested that dividends accompany information asymmetry between
managers and shareholders by delivering inside information of
firm's future prospects.
Agarwal, et al. (1996) identified a negative relationship between
board independence and firm's performance. The presence of
institutional nominees is a unique feature of Indian corporate
governance and there has been a powerful corporate lobby in favour of
removing them from boards. While this would reduce the accountability of
Indian boards even further, the reports argue that a more active
approach to corporate governance on the part of institutional investors
requires larger changes in the nature of the FIs' ownership and
control by government, greater autonomy for institutional managers, and
the active development of a market for corporate control. Several other
studies conducted in different countries showed the same relationship.
Recent studies suggest dividends' role as monitoring mechanism,
which allows minority shareholders to control the managers or larger
shareholders' decisions. The development of capital markets is
related to minority shareholders protection [Dragota (2006)]. Hence,
dividend policy serves as a mechanism for capital market development
thereby contributing to overall economic growth. Myers' (1984)
pecking order description of the capital structure decision implies a
link between the firm's dividend payout and its investment
requirements and earnings variability. Dividend payout behaviour of U.S.
firms as observed by the researchers supported their argument [Jensen,
Solberg, and Zorn (1992); McCabe (1979); Rozeff (1982)].
Although dividend payouts are a function of firm specific variables
such as investment requirements and earnings variability, Lintner (1953)
hypothesises that dividend policy also is influenced by an industry
effect. This effect could be interpreted as common correlations with
determinants of dividend payout by firms in the same industry, but
Lintner suggests an effect of dividend leadership analogous to price
leadership or wage leadership. Such an industry effect, if it exists,
presumably stands apart from other firm-specific variables that affect
payout decisions of the member firms within an industry and causes
industries to have varying dividend policies. Some evidence suggests
that there is significant variation in dividend payout ratios among
industries [Baker (1988); Michel (1979)].
3. RESEARCH DESIGN
3.1. Data Collection
Our study explores the relationship between economic reforms,
dividend payout ratio, corporate governance and sectoral economic growth
in Pakistan. The analysis covers a period of ten years from 1998 to
2008. This study is related to two major sectors of Pakistan, Large
Scale Manufacturing Sector (LSM) and Financial Sector (FS). The reason
behind selecting these two sectors is the major contribution of these
two sectors in total GDP. The financial sector of Pakistan contributes
approximately 52 percent of the total GDP while the Large Scale
Manufacturing (LSM) contributes 24 percent. The sample sectors are
amongst the biggest sectors in Pakistan. There are a large number of
companies in each sector. However, we have included only those companies
whose data are available and published by State Bank of Pakistan in its
annual reports. The breakdown of the sample by sectors and years given
in Table 1. The total number of observations is 3,643. The 84.30 percent
observations belong to LSM, because LSM is the largest sector in
Pakistan. But in recent year's financial sector (FS) is also
growing very rapidly, the contribution of FS observations in this sample
is 15.70 percent.
The reason for choosing this particular period is the variation and
introduction of economic reforms in Pakistan, which are reflected in the
macro-economic indicators. For example, in Pakistan, we have experienced
a high economic growth in last decade (1998-2008) and afterward a sharp
decline too. The data is collected from the annual reports of State Bank
of Pakistan, and Federal Bureau of Statistic: Pakistan. We applied
two-stage regression analysis for this study to avoid the possible
endogenous relationship among GDP growth and sectoral economic growth.
Since the sectoral economic growth may influence on the overall GDP
growth, hence likely to be endogenous variable.
3.2. Two Stage Regression Model
The variables included in this analysis are: dividend payout Ratio
(DPR), sectoral economic growth (SG), ownership concentration (OWCEN),
board Independence (BDIND), board size (BS), gross domestic product
(GDP), interest rates (IR), and foreign direct investment (FDI). The
dividend payout ratio (DRP) is defined as the total dividend paid by a
company either in term of cash or stock in a given year. Sectoral
economic growth is the growth rate of a particular sector in a given
year. The interest rates (IR) are the annual nominal interest rates in
Pakistan. The Foreign direct investment growth is the annual growth rate
in FDI in Pakistan. Gross domestic product growth is the annual growth
in country's gross domestic product. Board independence is the
proportion of independent directors in the board, if a proportion is
greater than 0.5 then assigned a value 1 otherwise 0. Board size is the
number of directors in the board. Ownership concentration is the
proportion of majority shareholders in a company, if the proportion is
greater than 0.5 then assigned a value of 1 otherwise 0.
First Stage Regression Model
In first stage regression, GDP annual growth is regressed on lagged
GDP annual growth rate, dividend payout ratio, annual interest rate,
foreign direct investment annual growth rate, ownership concentration,
board size and board independence. At this stage, we estimate GDP annual
growth and use it in the second stage as an explanatory variable.
GDP growth = [[alpha].sub.1] x [[beta].sub.1] DPR + [[beta].sub.2]
lagGDPGrowth + [[beta].sub.3]IR + [[beta].sub.4] FDIGrowth +
[[beta].sub.5] OWCEN + [[beta].sub.6] BDIND + [[beta].sub.7] BS +
[[epsilon].sub.1] Second Stage Regression Model
In second stage, estimated GDP annual growth rate is used as an
explanatory variable along with dividend payout ratio, annual interest
rate, foreign direct investment, ownership concentration, board
independence and board size to estimate sectoral economic growth.
SG = [[alpha].sub.1] + [[beta].sub.1] DRP + [[beta].sub.2]
[GDF.sub.EGrowth] + [[beta].sub.3] IR + [[beta].sub.4] [FDI.sub.Growth]
+ [[beta].sub.5] OWCEN + [[beta].sub.6] BDIND + [[beta].sub.7] BS +
[[epsilon].sub.1]
The expected signs are as follows: [[beta].sub.1] > 0,
[[beta].sub.2] > 0, [[beta].sub.3] < 0, [[beta].sub.4] > 0,
[[beta].sub.5] < [[beta].sub.6] + and [[beta].sub.7] > 0,
[epsilon]i is the error term, where i = 1, 2, 3, [[epsilon].sub.1] - N
(0, [6.sub.2]). The models follow the assumptions of classical linear
regression and some variations of it. The significance of this model
will be further analysed by applying ANOVA (Analysis of Variance).
4. EMPIRICAL RESULTS
Table 2 shows the descriptive statistics of the study. The mean GDP
growth rate and interest rate over the period of ten years are 5.39
percent and 9.25 percent respectively. The trend of GDP growth over the
sample period is mixed. The study period have three different phases in
term of political, economic and global changes. Initially during
1998-2001, the GPD growth in Pakistan is on the declining side due to
various geo-political changes within the country and globe. The
political government was taken over by military commander in late 1999
which created a severe political crisis in the country. The impact of
that political crisis was shown in the country's economy by large.
The situation becomes worse by 9/11 which affected the world economy
very badly.
After a hopeless situation in late 1990's and early 2000,
Pakistan' economy was then stabilised a bit by introducing a stable
political system and more precise industrial and economic policies.
Those positive changes were reflected in the country's GDP, and in
mid-2000 Pakistan had achieved its historic growth rate in GDP. The
financial sector at that time was in boom and major contributor in total
GDP. The interest rates are more stabilised and Pakistan was emerging as
a new economy at that time.
The last phase in late 2007 and early 2008 was also a shift of
political and economic change in the country. Almost nine years of
military regime dominated by Musharaf was ended in 2008. From the very
first day, the new political government in Pakistan faced severe
economic and security concerns. The impact of that economic crisis was
reflected on the gross domestic product growth rate and interest rate.
The GDP growth rate was declined again with an increase in discount
rate. The following graphs are shown the trend of GDP growth and
interest rates during the study period.
[GRAPHIC 1 OMITTED]
[GRAPHIC 2 OMITTED]
The mean sectoral economic growth of LSM and FS is 7.8 percent
which is higher than the overall mean GDP growth rate but with high
variation. The mean of sectoral economic growth (SEG) is mostly
contributed by financial sector. The SEG of large scale manufacturing
sector (LSM) has showed a much consistent trend as compared with SEG of
financial sector (FS) during the last decade. In few years, the sectoral
economic growth of LSM has declined from its average sectoral economic
growth of 7.68 percent. But in most years, the SEG of LSM was closer to
its average. On the other hand, the financial sector (FS) has
experienced it's boom time during the last decade. Financial sector
has started with a negative SEG in 1999 then achieved its highest SEG in
mid-2000 and then a sharp declined in 2007. The average SEG of FS was
12.7 percent during 1998-2008. The comparative trends of both SEG are
show in the following graph.
[GRAPHIC 3 OMITTED]
The mean dividend payout ratio in both sectors is 2.64 percent
which is not very high ratio, but variation in DPR is very high. The
reason behind a low average of DPR is textile sector. But the variation
in dividend payout ratio shows that the other firms in the sample have
very high percentage of dividend. It has been considerably noticed that
the dividend payout ratio of textile sector is very low during the last
decade. The high dividend payout ratio in financial sector is one of the
important indicator of financial sector growth and its contribution in
total GDP. The average dividend payout ratio of financial sector during
1998-2008 was 11.24 percent whereas DPR of LSM was 2.3 percent.
[GRAPHIC 4 OMITTED]
The average FDI growth rate during the study period is -2.60
percent which seemingly not in line with the given GDP growth rate at
the same time 80.10 percent standard deviation is observed in FDI. The
average board size in both sector's firms is 8, whereas on average
there is an ownership concentration in both sector firms with some board
independence which is very unlikely.
Table 3 gives the Pearson Correlation among all variables. The
highest correlation is among Board Independence and Board Size (r=0.57)
and it is significant at 1 percent level of significance. It is
theoretically in line with the literature that higher the board size
higher is the board independence. The correlation coefficients between
ownership concentration with board size and board independence are
positive and significant at 1 percent level of significance which is
very unusual. There is a negative and significant relationship between
dividend payout ratio and board independence (r=-0.028). The correlation
between sectoral growth and interest rate is also negative and
significant (r=-0.073).
To analyse further, we run two stage-regression to find out the
impact of economic reforms, corporate governance variables and dividend
policy on sectoral economic growth (SEG). In first stage-regression, we
estimated model 1, and then used the results of model 1 in second stage
regression. In Table 4, first stage-regression result shows that the
overall model is significant at 1 percent level of significance. The
co-efficient of lag GDP growth rate is highly significant at 1 percent,
which shows an impact of lagged GDP on GDP growth rate. The interest
rate co-efficient is negatively significant at 5 percent level of
significance, showing its negative impact on the economy growth. The
dividend payout rate has positive and significant impact on GDP growth
rate. All three governance variable ownership concentration, board
independence and board size has positive but non-significant impact on
over all GPD growth. The adjusted R2 of first stage regression is 18
percent.
In second stage-regression, result shows that the overall model is
significant at 1 percent level of significance.
The GDP_E coefficient is positive and significant at 1 percent
level of significance. This shows that growth in GDP can contribute into
an individual sectoral economic growth of a country. The interest rate
coefficient is negative and significant at 10 percent level of
significance. It is consistent with the literature that interest rates
are negatively associated with economic growth. High interest rates
increase the cost of doing business for a company which results in low
profits. The FD1 has a positive but insignificant impact on sectoral
economic growth. The role of economic reforms in determining the
sectoral economic growth is established from the results of this study.
Both GDP growth and interest rate are the part of economic reforms and
both have significant impact on sectoral economic growth.
The result also shows that there is a positive and significant
impact of dividend policy on sectoral economic growth. The companies
having consistent and high dividend payout ratio experience high
economic growth. A consistent dividend policy plays an important role in
building confidence among investors. There is general trend in case of
Pakistan's capital market, investors are more willing to invest in
those companies and sectors whose dividend payout ratio is higher than
others. The results of this study also support this argument.
Among three corporate governance variables, ownership concentration
and board independence have positive and significant impact on sectoral
economic growth, which is very unlikely for ownership concentration.
There is a positive but insignificant impact of board size on sectoral
economic growth. The adjusted [R.sup.2] of second stage regression is 25
percent.
5. CONCLUSION
In Pakistan, we had gone through phenomenon economic and structural
changes during the last decade. The decade was important for Pakistan in
term of political and economic changes in the country. That is the very
reason, we have chosen that period for our study. The main objective of
this study is to identify any relationship between sectoral economic
growth, economic reforms, corporate governance and dividend policy. The
study tries to establish a link between different but important
indicators of an economy. To setup an optimal dividend policy is an
important issue for any firm.
The results of this study have three aspects, first, the impact of
economic reforms on sectoral economic growth. In economic reforms
variables GDP growth and interest rates have positive and negative
impact respectively on sectoral economic growth while FDI has no impact.
This shows low interest rates and high economic growth contribute in
sectoral economic growth. If economy is growing then its effect will be
reflected in the industry's progress as well. The second aspect of
the analysis is dividend policy. Dividend policy has always been an
important factor to study for a company's performance and its
growth. It has a positive impact on sectoral economic growth. The high
dividend payout ratio leads to high growth in a respective sector. The
reason behind this argument is that high dividend payout ratio is always
an attraction for th investors to invest in those companies or sector
who have high dividend payout ratio. The argument is very well supported
by our results i.e., historical figures showed that there was a very
high dividend payout ratio in FS, on the other hand, a very low dividend
payout ratio in LSM. In result of that, FS has contributed significantly
very much in sectoral economic growth and overall GDP as compared to
LSM.
The last and the third part of the analysis looks at the impact of
corporate governance practices on sector growth. The result shows that
board independence has an important role in the progress and growth of
LSM and FS. While, unlikely, our results suggest that ownership
concentration is also an important factor for the growth of these
sectors. The result shows an indifferent impact of board size on
sectoral economic growth. Overall economic reforms, corporate governance
and dividend policy are important ingredients for sectoral economic
growth of Large Scale Manufacturing and Financial Sectors. Further
studies can extend this phenomenon for others sectors.
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Comments
This paper aims to examine the "impact of firm performance and
ownership structure on dividend payout ratio," but the very second
line suggests a different aim: "the impact of economic reforms,
corporate governance and dividend policy on economic sectoral growth of
Pakistan." This seems too much for one paper. The literature review
for this paper is inadequate. While some academic studies have been
cited from other countries, authors mostly rely on journalistic
material. It gives the impression of a newspaper article rather than a
review of relevant research. The literature review is not comprehensive
and misses some important studies.
The analysis covers a period of ten years from 1998 to 2008. LSM
and financial sector were selected. The authors say that financial
sector of Pakistan contributes approximately 52 percent of the total GDP
while Large Scale Manufacturing (LSM) contributes 24 percent. This is
not a correct depiction of services and LSM sectors. Since they used
only published data most of the firms (84 percent) lie in LSM sector.
An attempt is made to find a relationship between economic reforms,
dividend payout ratio, corporate governance and sectoral economic growth
in Pakistan by using dividend payout ratio (DPR), sectoral economic
growth (SG), ownership concentration (OWCEN), board independence
(BDIND), board size (BS), gross domestic product (GDP), interest rates
(IR), and foreign direct investment (FDI) as major variables. The
authors use two stage least square but one wonders how? What they are
referring to as two stages are actually two models. With 8 variables and
10 years data, it seems quite difficult, unless they did something else
but without making it clear. In the first model, ownership concentration
and FDI is insignificant with low R-square and High F value. Perhaps it
is a typo, as there are many others.
In second model, board size and interest rate turned out
insignificant. The authors related economic growth, FDI and interest
rate with the firm level data which is totally inappropriate and source
of inefficiency.
Nadia Tahir
Lahore Business School, University of Lahore, Lahore.
Ramizur Rehman <ramiz_rehman@hotmail.com> is PhD Scholar,
Xi'an Jiaolong University, Xi'an, Shaanxi, China and Assistant
Professor of Finance, Lahore Business School, The University of Lahore,
Lahore. Mudassar Hasan <mudassar.hasan@yahoo.com> is Lecturer of
Finance, Lahore Business School, The University of Lahore. Inayat Ullah
Mangla <inayat.mangla@wmich.edu> is Professor of Finance, Haworth
College of Business, Western Michigan University, Kalamazoo, Ml, USA.
Naheed Sultana <naheed.sultana@.lbs.uol.edu.pk> is Dean, Lahore
Business School, The University of Lahore, Lahore.
Table 1
Sample Break Down
By Sector
Industry Frequency Percent
Large Scale Manufacturing
Textile 1322 36.29%
Chemical 285 7.82%
Engineering 301 8.26%
Sugar 240 6.59%
Paper and Board 85 2.33%
Cement 101 2.77%
Fuel and Energy 190 5.22%
Tabaco 25 0.69%
Jute 41 1.13%
Vanaspati and Allied Industry 38 1.04%
Misc. Industry 443 12.16%
Total Manufacturing 3071 84.30%
Financial
Public Banks 46 1.26%
Private Banks 175 4.80%
Foreign Banks 58 1.59%
Specialised Banks 44 1.21%
Insurance Companies 78 2.14%
Leasing Companies 17 0.47%
Investment Banks 14 0.38%
Modarba 49 1.35%
Mutual Funds 30 0.82%
DFI's 11 0.30%
Exchange Companies 41 1.13%
House Finance 3 0.08%
Venture Capital 6 0.16%
Total Financial 572 15.70%
Total Sample 3643 100.00%
By Year
Year Frequency Percent
1998 413 11.34%
1999 412 11.31%
2000 248 6.81%
2001 227 6.23%
2002 220 6.04%
2003 210 5.76%
2004 197 5.41%
2005 206 5.65%
2006 418 11.47%
2007 539 14.80%
2008 553 15.18%
Total 3643 100%
Table 2
Descriptive Statistics
Variables N Mean Median Std Q1 Q3
SEC_GDP 20 7.80% 6.90% 6.53% 4.80% 9.30%
GDP 10 5.39% 5.80% 1.88% 3.90% 7.20%
INT 10 9.25% 9.50% 1.80% 7.50% 10.00%
FDI 10 -2.60% 26.50% 80.10% -19.10% 44.80%
DRP 3643 2.64% 0.00% 9.31% 0.00% 2.30%
OWNCON 3643 0.92 1 0.25 1 1
BI 3643 0.629 1 0.48 1 1
BS 3643 8.6 8 2.6 7 11
Table 3
Pearson Correlation
Variables SEC_GDP GDP DRP FDI INT
SEC_GDP 1 0.094 *** 0.092 *** 0.06 -0.073 ***
GDP 1 0.040 ** 0.12 -0.02
DRP 1 0.01 * 0.05 *
FDI 1 0.032
INT 1
OWNCON
BI
BS
Variables OWNCON BI BS
SEC_GDP -0.004 0.026 0.021
GDP 0.002 0.081 0.012
DRP -0.003 -0.028 ** -0.043 **
FDI 0.01 0.049 0.031
INT 0.045 0.02 0.008
OWNCON 1 0.339 *** 0.164 ***
BI 1 0.57 ***
BS 1
* Signifinance at the level of 10 percent (One- tail test).
** Signifinance at the level of 5 percent (One- tail test).
*** Signifinance at the level of 1 percent (One- tail test).
Table 4
Two Stage-Regression
Predicted
Variables Signs Co-efficient
Panel A: First Stage-Regression
Intercept ? 0.034
lag_GDP + 0.410
FDI + 0.160
INT - -0.012
DRP + 0.005
OWNCEN - 0.006
BI + 0.001
BS + 0.100
N
F-Statistics
Adjusted [R.sup.2]
Panel B: Second Stage-Regression
Intercept ? 0.012
GDP_E + 1.280
FDI + 0.020
INT - -0.008
DRP + 0.064
OWNCEN - 0.020
BI + 0.032
BS + -0.005
N
F-Statistics
Adjusted [R.sup.2]
Variables t-statistics P-value
Panel A: First Stage-Regression
Intercept 19.70 0.000 ***
lag_GDP 25.37 0.000 ***
FDI 1.60 0.150
INT -3.02 0.02 **
DRP 2.08 0.036 **
OWNCEN 1.92 0.51
BI 4.31 0.23
BS 3.37 0.19
N 3,643
F-Statistics 128.890 0.000 ***
Adjusted [R.sup.2] 18%
Panel B: Second Stage-Regression
Intercept 1.250 0.211
GDP_E 8.940 0.000 ***
FDI 1.100 0.310
INT -1.840 0.064 *
DRP 6.190 0.004 ***
OWNCEN 4.180 0.071 *
BI 5.190 0.016 **
BS -0.099 0.320
N 3,643
F-Statistics 24.350 0.000 ***
Adjusted [R.sup.2] 25%
The dependent variable in first stage-regression is GDP.
The dependent in second stage-regression is SEC_GDP.
lag_GDP is a lagged value of GDP in first stage, whereas
GDP_E is the fitted value of GDP from first stage.
* Signifinance at the level of 10 percent (One- tail test).
** Signifinance at the level of 5 percent (One- tail test).
*** Signifinance at the level of 1 percent (One- tail test).
