IIIHSInternational Institute of Integral Human Sciences
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Next, we extend our analysis by examining in Table VIII whether the effect of IIIH on equity financing costs hinges on the extent of agency problems within a firm.
We also analyze the effect of IIIH on equity pricing after splitting the sample period into the pre-SOX and the post-SOX periods.
In this section, we conduct additional analyses to assess the robustness of our results to using alternative proxies for IIIH, specifying alternative measures of the cost of equity capital, including additional control variables, and addressing potential endogeneity.
We replace Gaspar et al.'s (2005) proxy of IIIH with Van and Zhang's (2009) alternative proxy measured as follows
The results reported in Table XI confirm our earlier findings that longer IIIH is negatively related to equity costs.
Therefore, a possible concern in our analysis is that analyst forecast error is correlated in some specific way with IIIH leading to spurious inferences.
We find that the coefficient on the decile ranks is positive and highly significant (t-statistic = 10.43), reinforcing our earlier evidence that longer IIIH results in higher implied risk premiums.
Moreover, we use the lagged risk premium as an independent variable (Chen et al., 2011) since previous firm characteristics affecting the cost of equity might also affect IIIH. The untabulated results indicate that the estimated coefficient of WACR continues to load positively (at the 1% level), strengthening our previous findings of a negative impact of long-term institutional investors on firm's equity premium.
In addition, in the spirit of Laeven and Levine (2008) and Pawlina and Renneboog (2005) and references therein, we use lagged measures of IIIH to mitigate simultaneity issues.
This study examines the influence of IIIH on a firm's cost of equity.
For example, our findings suggest that IIIH may impact major corporate decisions such as investment outlays, dividend policy, and capital structure policy.
(1) Specifically, we regress the implied equity premium estimated as of the end of June of year t on IIIH and controls.