Financial Leverage and corporate performance: Does the duration of the Debt Ratio Matters

Appiah, Kingsley Opoku; Gyimah, Prince; Abdul-Razak, Yakubu

doi:10.1504/ijbem.2020.10025611

Cited by 4 publications

(5 citation statements)

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“…If the leverage level of a firm increases beyond a reasonable level, profitability may be eroded due to the high risk associated with debt financing, according to the theory of traditional capital structure. These results are consistent with Xu et al [1], Salim and Yadav [23], Omollo [27], Appiah et al [28], and Okudo et al [29]. Therefore, companies are advised to carefully manage the proportion of debt in their financing.…”

Section: Regression Resultssupporting

confidence: 90%

The Impact of Capital Structure on Financial Performance of Agricultural Listed Companies in China Based on Multiple Linear Regression Model and Data Mining

Qiao

2023

AEDMR

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Background: With the transformation and upgrading of the economy, the market capitalization scale of agricultural listed companies has become larger and larger, but the problems caused by the unreasonableness of their capital structure have become increasingly prominent. This study aims at examining the relationship between capital structure and financial performance of agricultural listed companies in China. Methods: Secondary data are obtained from annual financial statements of the sampled firms over the period 2018-2022, and analyzed statistically using multiple regression models. The capital structure indicators refer to total debt ratio (TDR), short-term debt ratio (STDR), and long-term debt ratio (LTDR), and return on assets (ROA) and return on equity (ROE) are the performance proxies. Results: The results reveal that TDR and STDR have strong negative relationships with ROA and ROE, while LTDR has insignificant correlations with financial performance. Conclusion: The outcomes imply that agricultural companies should pay regular attention to the gearing ratio and strive to maintain good capital mix. They should depend less on short-term debt and could properly employ more of long-term debts in financing to improve profitability and promote sustainable development.

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Section: Regression Resultssupporting

confidence: 90%

The Impact of Capital Structure on Financial Performance of Agricultural Listed Companies in China Based on Multiple Linear Regression Model and Data Mining

Qiao

2023

AEDMR

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“…A comprehensive literature exists that support a positive influence of bank loans on financial performance (Bandyopadhyay & Barua, 2016;Forte & Tavares, 2019;González, 2013). In contrast, statistical findings of some studies were also in the favour of negative effect (Appiah et al, 2020;Vătavu, 2015;Yazdanfar & Ohman, 2016). Besides individual effect of bank loans on financial performance, this study dwells upon the possible financial outcomes when these loans are acquired to finance the trade credit channel.…”

Section: Review Of Literaturementioning

confidence: 88%

Trade Credit as a Determinant of Firm’s Financial Performance: Moderating Role of Bank Financing

Farooq

Ahmed

Ashfaq

et al. 2021

Global Business Review

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The objective of study is to find out the impact of trade credit on a firm’s financial performance and how this effect diversifies when enterprises acquire bank loans to finance the trade credit channel. To achieve the objective, we employ the data of 6,654 non-financial-sector firms from 12 Asian economies and apply fixed-effects model to estimate the regression. The statistical output of the model provides consistent evidence that the firms that adjust their trade credit activities through bank financing perform better financially. Acquisition of bank loans to expand the trade credit activities is a healthy financial activity because it provides financial setbacks in case of any fluctuation in trade credit. However, acquiring bank loans when firms have no operational need for such types of funds can disturb their financial health. Briefly, the analysis provides novel evidence that efficient usage of bank loans into physical business activities can intensify financial efficiency of corporate firms. The analysis provides financial guidance to corporate managers that before entering into any trade credit terms, they should ensure the availability of bank loans because it provides a strong financial pace against any financial shock.

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“…Thus, firms with a high profitability ratio should take on more debt to control managers-shareholders agency conflicts. On the other hand, Myers and Majluf (1984) argued that given the relative information costs of external funding, profitable firms might likely employ lower debt in their capital structures (Appiah et al, 2020; Ngatno et al, 2021). As such, there will be a negative relationship between profitability and leverage.…”

Section: Methodsmentioning

confidence: 99%

“…Consequently, lenders will be relatively more willing to extend loans to firms with high tangible assets. GROWTH is calculated as capital expenditure divided by total assets (Appiah et al, 2020; Moradi & Paulet, 2019). Companies with high growth are embedded with underinvestment and assets substitution problems, and lenders may be less willing to supply loans to such firms (Agyei et al, 2020; Rajan & Zingales, 1995).…”

Section: Methodsmentioning

confidence: 99%

Board Governance Mechanisms and Capital Structure of Saudi Non-Financial Listed Firms: A Dynamic Panel Analysis

Bazhair

2023

SAGE Open

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The dynamic trade-off model emphasizes that random shocks and other constraints may force firms to deviate from their optimum debt ratio. In addition, firms must incur adjustment costs for them to revert to their target level due to market frictions. However, prior literature in Saudi does not consider the effect of adjustment costs in determining how board governance mechanisms influence capital structure. By exploiting the generalized method of moments framework (GMM), this study analyzed the balanced panel of 100 Saudi non-financial listed firms covering the period from 2010 to 2019. The research found that Saudi firms observed a dynamic adjustment to attain their target leverage at 30.46% annually. Besides that, findings from the present study equally indicate strongly that board size and CEO tenure are negatively associated with leverage. There is also strong evidence that Saudi firms with a substantial number of independent directors pursue a more levered capital structure. Gender diversity appears insignificant in predicting the firms’ target debt ratio. Consequently, the Saudi board of directors and firms’ managers should consider the adjustment costs and other market frictions when designing the optimum debt-equity ratio.

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Financial Leverage and corporate performance: Does the duration of the Debt Ratio Matters

Abstract: ww w.i nd ers cie nce .co m/ ijbe m Inter natio nal Jour nal of Bu sin es s an d Em er gi ng M ar ke ts

Cited by 4 publications

References 0 publications

The Impact of Capital Structure on Financial Performance of Agricultural Listed Companies in China Based on Multiple Linear Regression Model and Data Mining

The Impact of Capital Structure on Financial Performance of Agricultural Listed Companies in China Based on Multiple Linear Regression Model and Data Mining

Trade Credit as a Determinant of Firm’s Financial Performance: Moderating Role of Bank Financing

Board Governance Mechanisms and Capital Structure of Saudi Non-Financial Listed Firms: A Dynamic Panel Analysis

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