The models and the method
With the purpose of more accurately evaluating the relationship between the dependent and
explanatory variables, certain firm-specific variables are controlled for. These control
variables are AGE07, LEV07, ROS07 and MB07. A firm’s age is an important determinant of
its level of expertise and flexibility, and thus has a tendency to affect VAIC and its
components. The proxy for the companies’ financial risk is determined as debt level
because it encompasses issues relating to costs of capital and default risk. The financial
performance of the firm is also included in the models by the variable ROS, since the
concept of VAIC is closely related to the profitability of the firm. The final control variable
employed is the ratio of the firms’ market to book value as it is an important determinant of
stock performance and growth opportunities.
Table II displays the models used together with the variables employed. The explanatory
variable and the control variables employed are the same for all models.
This study employs the enter regression method because enter regression is usually applied
to make a decision regarding the best set of explanatory variables for the regression model
(Gujarati, 2003).