Diversification, capital structure and profitability: A panel VAR approach 1 1We are grateful to the editor and the anonymous reviewer for their valuable comments.

Jouida, Sameh

doi:10.1016/j.ribaf.2017.07.155

Cited by 47 publications

(20 citation statements)

References 42 publications

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“…Overall, the results imply that a corporation with a reasonable level of debt may improve a firm’s performance that not only reduces information asymmetry between principal and agents but also enhances their reputation in the market. Our results are consistent with prior literature, including Jenson (1986) and Jouida (2017) that firms with a higher level of debt to assets ratio may affect managers and increase the agency costs through the threat of bankruptcy that causes their personal reputation in the labor markets.…”

Section: Data Analysis Results and Discussionsupporting

confidence: 91%

“…Based on the theoretical prediction of the theories documented above, many empirical studies have explored the correlation between capital structure and profitability. The majority of these studies are based on the developed markets, suggesting positive (for instance, see Jouida 2017; Adair and Adaskou 2015; Fosu 2013; Margaritis and Psillaki 2007; Berger and Di Patti 2006), negative (Yazdanfar and Ohman, 2015; Gill and Mathur, 2011; Goddard et al , 2005; Titman and Wessels, 1988; Miller, 1977; Myers, 1977) and a nonlinear association between leverage and profitability (Bae et al , 2017; Pattitoni et al , 2014).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

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An empirical investigation on the impact of capital structure on firm performance: evidence from Malaysia

Ayaz

Zabri

Ahmad

2021

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PurposeThe purpose of this study is to examine the relationships between leverage and firm’s performance in Malaysia by framing the relationship under the tradeoff theory and agency cost theory.Design/methodology/approachBased on insights drawn from the existing literature, we opted for fixed effects and system two-steps GMM models to establish the hypothesized relationship between leverage and performance. We analyzed 528 nonfinancial firms listed on the Bursa Malaysia Stock exchange for the period of 12 years (2005–2016).FindingsThe outcomes show that the leverage ratio improves the firm performance, consistent with leverage serving as an effective strategy in constraining managers from building their personal empire, revealing a proportionately greater benefit for Malaysian firms than the cost to debt financing. The authors also find that a positive relationship between leverage and firm performance switch to the negative when the level of leverage reaches beyond the optimal level. Consequently, switching from positive to negative indicates that debt has a twofold (nonlinear) impact on firm performance.Practical implicationsOur research provides several implications to potential stakeholders. For investors, firms having lower leverage ratios could achieve superior performance, thus investing in corporations pursuing higher performance. Managers should therefore strive for achieving higher performance to meet the needs of investors and shareholders. From the researcher’s perspective, our research suggests the need to go away from the searching linear association between leverage and firm performance and the relevance of nonlinear correlation. Moreover, our research can help managers to understand how their lender relates to their debt to assets ratios. Thus, they can design an optimal level of leverage that not only improves the firm’s performance but also reduce the associated costs.Originality/valueTo the best of the author’s knowledge, this is the initial attempt in the context of Malaysia that documents evidence indicating that the lower leverage is likely to create value for shareholders while a higher debt ratio reduces firm profitability.

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Section: Data Analysis Results and Discussionsupporting

confidence: 91%

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

An empirical investigation on the impact of capital structure on firm performance: evidence from Malaysia

Ayaz

Zabri

Ahmad

2021

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“…Lev. and performance (as in Nawaz et al [5]; Sena [24]; Ibhagui and Olokoyo [27]; Agrawal and Knoeber [43] which developed a similar study on large companies and Jouida [61] on financial institutions). In fact, the FEDV reveals that Fin.…”

Section: Analysis and Results Discussionmentioning

confidence: 99%

“…Using the panel vector auto-regression with generalized method of moment (GMM) framework, based on impulse response factors (IRF) and forecast error variance decomposition (FEVD) applied on 412 French financial institutions, Jouida [61] found an inverse bidirectional causal relationship between profitability and debt level and a shock to leverage decreased the profitability of the financial sector. We used in our paper the same methodology but applied it to over 10,000 large companies across all sectors of activity, except the financial sector, from 28 European countries.…”

Section: Literature Review and Analysis Of Interactions Between Factorsmentioning

confidence: 99%

Analysis of Risk Factors Affecting Firms’ Financial Performance—Support for Managerial Decision-Making

2019

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This paper aims to investigate how financial variables and exogenous crises influence firms’ financial performance, and how these factors may help managers in decision-making to increase their firm’s wealth. The dynamic interactions among variables were studied by applying a panel vector autoregressive model using annual data for a sample of non-financial firms from European countries. Results indicate that liquidity, leverage and productivity positively affect firm performance, while solvency and asset turnover are positive and statistically significant only in the case of return on equity. Labour productivity induces that firms tend to display larger efforts to keep financial performance in face of a crisis, considering that the crisis reveals a negative statistical impact over return on assets.

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“…The shift toward non-traditional banking activities or income diversification is an important business orientation of banks, thanks to the benefits it brings about. Banks could take advantage of upsides from diversifying the sources of bank income via economies of scale, such as input shares in joint production or cross-selling activities (Jouida, 2018). From a theoretical perspective of diversification, a combination of revenue sources from various activities that have little correlation with each other will reduce bank risk.…”

Section: Non-interest Income and Bank Riskinessmentioning

confidence: 99%

Non-interest Income, Credit Risk and Bank Stability: Evidence from Vietnam

Dang

2020

IJIE

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This study examines the impact of non-interest income on bank riskiness captured by two dimensions of credit risk and bank stability. Based on a panel of Vietnamese banks during the period 2007-2017 and a dynamic approach estimated by the generalised method of moments (GMM), we find that: (1) banks more involved in non-interest income activities have less credit risk, but higher bank instability; (2) the decomposition of bank instability indicates that risk-adjusted profitability and capital buffer corresponding to risk-taking are adversely affected by non-interest income; and(3) private banks could gain more diversification benefits of credit risk reduction, while the drawback effect of income diversification on bank stability is lower for state-owned banks. Our findings exhibit the double-edged nature of the shift toward non-interest from interest income, but we have no evidence to support the notion that non-interest income drives bank stability through the transmission impact of credit risk. The study clarifies the ongoing debates about the safety and soundness of income diversification in emerging markets.

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Diversification, capital structure and profitability: A panel VAR approach 1 1We are grateful to the editor and the anonymous reviewer for their valuable comments.

Cited by 47 publications

References 42 publications

An empirical investigation on the impact of capital structure on firm performance: evidence from Malaysia

An empirical investigation on the impact of capital structure on firm performance: evidence from Malaysia

Analysis of Risk Factors Affecting Firms’ Financial Performance—Support for Managerial Decision-Making

Non-interest Income, Credit Risk and Bank Stability: Evidence from Vietnam

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