3.2.3. Control Variables

On the basis of previous studies (Azmat 2014; Martínez-Sola et al. 2013; Nguyen et al. 2016; Vijayakumaran and Atchyuthan 2017), our threshold regression model includes several additional variables to control for a set of firm-specific characteristic that are likely to be correlated with company's performance. These include firm size (denoted by SIZE), leverage (denoted by LEV), and firm's growth (denoted by MB). The following section will analyze interconnection between these variables relative to company's performance.

Firm size (SIZE): According to Dang et al. (2018), in empirical corporate finance, the firm size is commonly used as an important, fundamental firm characteristic. They examined the influences of employing different proxies (total assets, total sales, and market capitalization) of firm size. The results show that, in most areas of corporate finance, the coefficients of firm size measures are robust in sign and statistical significance. In addition, the coefficients on repressors other than firm size often change sign and significance when different size measures are used. Therefore, the choice of size measures needs both theoretical and empirical justification.

The firm size is considered one determinant of firm performance and value. Abor (2005) and Vijayakumaran and Atchyuthan (2017) suggested that enterprises of higher size generally have higher firm performance. On the other hand, researches by Cheng et al. (2010), Martínez-Sola et al. (2013), and Nguyen et al. (2016) suggest that enterprises of higher size generally have lower firm performance and value. Thus, the relationship between the size and the performance of companies is unclear. To measure the firm size, there exist different perspectives. According to Azmat (2014), Nguyen et al. (2016), and Vijayakumaran and Atchyuthan (2017), the firm size is defined by a natural logarithm

of total assets. Further, Martínez-Sola et al. (2013) showed that the firm size is defined by natural logarithm gross sales. In this study, we only used the book value of total asset to calculate the firm size. The measurement of firm size was defined as below:

$$\text{SIZE} = \text{Ln}(\text{Book value of Total assets}) \tag{3}$$

Growth (MB) is considered to be a factor related to firm performance. Abor (2005) suggested that enterprises of higher growth opportunities generally have higher profitability. On the other hand, researches by Nguyen et al. (2016) suggest that enterprises of higher growth generally have lower firm performance and value. In addition, Vijayakumaran and Atchyuthan (2017) suggested that sales growth is not significantly related to firm performance. Thus, the relationship between the growth and the firm performance is unclear. To measure growth, there exist different perspectives. According to Abor (2005), Nguyen et al. (2016), and Vijayakumaran and Atchyuthan (2017), growth is defined by the growth rate on operating sales. Further, Cheng et al. (2010) showed that growth is defined by the growth rate of operating sales and growth rate of total assets. In this study, growth was measured by market value over the book value of stocks. The measurement of growth was defined as below:

$$\text{MB} = \frac{\text{Market value of stocks}}{\text{Book value of stocks}} \tag{4}$$

Leverage (LEV) is considered one determinant of firm performance and value. Abor (2005), Nguyen et al. (2016), and Vijayakumaran and Atchyuthan (2017) suggested that enterprises of higher leverage generally have lower profitability. On the other hand, researches by Martínez-Sola et al. (2013) suggest that enterprises of higher leverage generally have higher firm value. In addition, the empirical results by Cheng et al. (2010) strongly indicate that triple-threshold effect exists between leverage and firm value. Thus, the relationship between the leverage and the firm performance is unclear. To measure leverage, there exist different perspectives. According to Abor (2005), Azmat (2014), and Nguyen et al. (2016), leverage is defined by total debt over total assets. Further, Martínez-Sola et al. (2013) and Vijayakumaran and Atchyuthan (2017) showed that leverage is defined by total debt over total equity. In this study, we only used the book value of total debt and total asset to calculate leverage. The measurement of leverage was defined as below:

$$\text{LEV} = \frac{\text{Market value of total debt}}{\text{Book value of total assets}} \tag{5}$$
