This paper examines how proxies of efficiency can help investors in exploring firm profitability, stock market value and operational cash flow using company accounting information on the basis of the multiple regression model. On a sample of 215 non-financial firms listed on the Italian Stock Exchange between 2004 and 2013, a positive correlation was found between several turnover ratios used as proxies of efficiency and measures of firm profitability that are more closely related to operating activities such as EBITDA to assets ratio. Similarly, a positive correlation was revealed when operational cash flow was examined, whilst no significant associations between proxies of efficiency and stock market indicators were found. Furthermore, this study explored the role that turnover ratios used as proxies of efficiency have on capital structure in order to gain insight into the significance of relationships related to cash flow.
This paper investigates how volatility of cash flow from operations affects debt financing and accounts payable using a sample of Italian listed firms. Firms with different levels of cash flow were also examined. We find that firms that have more cash flow volatility have lower long-term debt to total debt, whatever the average level of their cash flow. We also show that accounts payable is positively associated with cash flow volatility, in particular for firms with a higher level of cash flow. Lastly, research findings reveal that firm leverage as measured by the total debt to assets ratio is negatively associated with cash flow volatility when firms have a lower level of cash flow, while the same relationship was not found for firms with a higher cash flow level.
This paper examines the relationship between the cost of debt and corporate profitability using a sample of 3,556 Italian unlisted firms between 2007 and 2011. On the basis of the logistic regression model, we find that the cost of debt, measured by the interest expense to financial debt ratio, is negatively correlated to various proxies of firm profitability. These findings are consistent with previous research on the relevance of indirect costs of corporate distress. However, although the analysis found evidence that unprofitable firms are highly leveraged in accordance with the Pecking order theory, we also observed that the cost of debt for the firms included in the sample is inversely dependent on the amount of financial debt.
Despite appeals from public opinion all over the world for the development of ethics in business and the widespread adoption of a Code of ethics by many firms, the integration of ethical values into the corporate planning process has received little attention either in real life or in research literature. In order to overcome the gap between ethical principles and practice, this study underlines some key points which could help the integration of values into Activity-Based Budgeting: identifying ethical values, creating an Ethical framework, examining the distinctive parts of actions, choosing a preference order for values, incorporating the values into each single element of every activity. The approach based on activities allows managers to give visibility to those objectives with an ethical dimension and incorporates them analytically into the budgeting system.
This paper examines a sample of 72 firms listed on the Italian Stock Exchange between 2007 and 2011 which were in serious economic difficulty. These companies adopted a series of measures to find a way out of the crisis, including management changes, divestment of assets, debt restructuring and the issuing of new shares. The paper aims to verify the existence of a preference order for responses to the economic crisis. Unlike previous research, a methodology has been adopted which analyses the content of the Management Commentary in order to identify both the proposals presented by managers and the measures actually adopted. The result of the analysis shows that the different types of measures to solve the crisis are often proposed and/or realized in a combined manner. Although the existence of a pecking order is not immediately obvious, a preference for management changes seems to emerge, whereas debt renegotiation and the issuing of new shares appear to be used only as secondary responses. Furthermore, based on the results of the logistic regression model, this paper suggests that the reasons for choosing the types of restructuring measures appears to be mainly related to their profitability. Managers of low profitability firms intervene most frequently on the capital structure rather than adopting general management changes and divestment plans. This result is consistent with the Pecking order theory which deals with the hierarchy of funding sources followed by firms.
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