Modigliani-Miller Proposition II on best performing Nifty midcap 50 stocks

The research tries to study the MM theory second proposition in the context of midcap stocks.  The well performing stocks (10 stocks) were chosen from the universe of nifty midcap 50 stocks. The selection was based last 10 years profit growth, RoE and asset growth in the last 10 years. Here ro, unlevered cost of equity, is calculated using CAPM model for a company which is close to the company in question in terms of operation and size. For each company cost of equity re is calculated using DE of the same and r_o (cost of equity of unlevered firm). The DE variable alone was regressed against the calculated r_e. The result was that DE was not significant in impacting r_e and the model was not fit with R² value is 0.17. When the model is modified with two variables, DE and r_o and regressed against re, the model proved to a fit model (R² is 0.96) and the two variables were found significantly impacting the r_es of the ten midcap companies.