The relationship of capital structure decisions with firm performance: A study of the engineering sector of Pakistan

Khan, Abdul Ghafoor

doi:10.5296/ijafr.v2i1.1825

Cited by 104 publications

(115 citation statements)

References 32 publications

(30 reference statements)

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…In a study, Abor (2007) found a positive relationship between short term debt and return on assets in small and medium enterprises (SMEs) because of the nature of industry in which they are operating and low level of interest rates. These finding are not consistent with the study by Khan (2012) that financial leverage measured by short term debt to total assets (STDTA) has a significant negative relationship but has consistency with the result that total debt to total assets (TDTA) with the firm performance measured by Return on Assets (ROA) has significant negative relationship. The independent variables are moderately related with ROA since the value of Adjusted R-square is 0.603.…”

Section: From the Pearson Correlation Matrix (contrasting

confidence: 89%

Capital Structure and Firm's Financial Performance: Evidence from Listed Cement Companies of Dhaka Stock Exchange of Bangladesh

Mansour¹,

Nofal²,

Noori³

et al. 2017

IJBSA

View full text Add to dashboard Cite

Bangladesh cement industry is the 40th largest market in the world. Despite the recent global economic upheavals, the Bangladesh economy continues its steady march with growth in excess of 6% over the past few years. Development of cement industry in Bangladesh dates back to the early-fifties but its growth in real sense started only about a decade. The country has been experiencing an upsurge in cement consumption for the last five years. This paper examines the effect of capital structure on firm's performance. This paper uses four performance ratios namely ROE, ROA, EPS and Net profit margin as the dependent variables and SDTA, LDTA, TDTA, LTDCE, TDTQ (five capital structure ratios), size, growth of the company, tangibility of assets, cash flows and liquidity as independent variables. This paper uses panel data procedure for a sample of 5 companies out of 7 listed cement companies of Dhaka Stock Exchange (DSE) over the period 1999 to 2011. The panel data regression Fixed Effects Model (FEM) analysis demonstrated that short-term debt and cash flows have significant positive effect on performance variables. But long-term debts, tangibility of assets and liquidity have significant negative effect on the financial performance variables except on ROE. This paper shows that Bangladeshi cement companies represent low accounting performance over the years. So this study recommends that managers of manufacturing companies should exercise caution while choosing the long-term debt to use in their capital structure as it affects their performance negatively.

show abstract

Section: From the Pearson Correlation Matrix (contrasting

confidence: 89%

Capital Structure and Firm's Financial Performance: Evidence from Listed Cement Companies of Dhaka Stock Exchange of Bangladesh

Mansour¹,

Nofal²,

Noori³

et al. 2017

IJBSA

View full text Add to dashboard Cite

show abstract

“…The insignificant relationship between the STDR and accounting based measure which is ROA indicates that STDR has no significant impact on returns of construction firms in Malaysia. This result is consistent with the study by Ebrati, Emadi, Balasang, and Safari (2013), Hamid, Abdullah, and, Kamaruzzaman (2015), Hasan, Ahsan, Rahaman, and Alam (2014), Khan (2012), Olokoyo (2013), andTaani (2013). Table 2 also shows that the relationship between LTDR and ROA in construction firms in Malaysia is not statistically significant (LTDR: β = -1.6402, p > 0.05).…”

Section: Capital Structure and Return On Assetsupporting

confidence: 90%

“…Among the financial ratio, ROA is found to be the most popular and useful financial ratio. ROA can be derived by dividing net income plus interest expenses with total assets (Ebrati et al, 2013;Khan, 2012). The ratio was introduced by DuPont company back in 1919 where they used it as the top of their ratio triangle system (Jewell & Mankin, 2011).…”

Section: Literature Reviewmentioning

confidence: 99%

“…As such various studies were conducted to examine the effect of capital structure decision and firm performance (Adami, Gough, Muradoğlu, & Sivaprasad, 2013;Collins, Filibus, & Clement, 2012;David & Olorunfemi, 2010;Dawar, 2014;Hasan, Ahsan, Rahaman, & Alam, 2014;John, 2013;Khan, 2012). There are numerous research conducted to examine the relationship between capital structure and firm performance in developing countries such as Nigeria (Akeem, K, Kiyanjui, & Kayode, 2014;Collins et al, 2012;David & Olorunfemi, 2010), India (Chisti, Ali, & Sangmi, 2013;Dawar, 2014), Bangladesh (Hasan et al, 2014) and Jordan (Zeitun & Tian, 2007).…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Capital Structure Influence on Construction Firm Performance

2017

View full text Add to dashboard Cite

The interconnectedness between capital structure and firm performance is a topic of high interest among scholars and management alike. The scholars tend to unveil the why segment of the relationship, while the management looks into the how side to promote capital structure policy which can optimise the firm performance. While many studies have looked into this relationship across multiple industries and spanning across decades of data, the current study trains its lens on Malaysian public listed company companies which operate in the construction sector, and with data window between 2010 to 2014. This specific sector was chosen for their high gearing which renders firms to relatively high insolvency exposure emanating from interest rate fluctuations. The five-year timeframe was selected to isolate potential data contaminations streaming from global financial crisis which winds down in 2009. Financial data of the company were extracted from Bloomberg Terminal based on a pre-prepared list of Bloomberg tickers. A total of 225 observations were recorded in this study. Using Tobin's Q as a proxy for firm performance, this study finds a mixed result where short term debts ratio indicates a significant negative effect, while long term debt ratio presents a non-significant influence. Explanations on this output are therefore discussed in this paper.

show abstract

“…On the other hand, Abor (2005) proved that due to the large percentage of short-term financing, profitability is positively related to debts because profitable company regards debts as the primary financing source (Khan 2012). Gill et al (2011) discovered that both long-term debts and short-term debts are positively correlated with profitability.…”

Section: Profitabilitymentioning

confidence: 99%

An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies

Kang

Ausloos

2017

Economies

View full text Add to dashboard Cite

Abstract:Credit risk rating is shown to be a relevant determinant in order to estimate good corporate governance and to self-optimize capital structure. The conclusion is argued from a study on a selected (and justified) sample of (182) companies listed on the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange (SZSE) and which use the same Shanghai Brilliance Credit Rating & Investors Service Company (SBCR) assessment criteria, for their credit ratings, from 2010 to 2015. Practically, 3 debt ratios are examined in terms of 11 characteristic variables. Moreover, any relationship between credit rating and corporate governance can be thought to be an interesting finding. The relationship we find between credit rating and leverage is not as evident as that found by other researchers for different countries; it is significantly positively related to the outside director, firm size, tangible assets and firm age, and CEO and chairman office plurality. However, leverage is found to be negatively correlated with board size, profitability, growth opportunity, and non-debt tax shield. Credit rating is positively associated with leverage, but in a less significant way. CEO-Board chairship duality is insignificantly related to leverage. The non-debt tax shield is significantly correlated with leverage. The correlation coefficient between CEO duality and auditor is positive but weakly significant, but seems not consistent with expectations. Finally, profitability cause could be regarded as an interesting finding. Indeed, there is an inverse correlation between profitability and total debt (Notice that the result supports the pecking order theory). In conclusion, it appears that credit rating has less effect on the so listed large Chinese companies than in other countries. Nevertheless, the perspective of assessing credit risk rating by relevant agencies is indubitably a recommended time dependent leverage determinant.

show abstract

The relationship of capital structure decisions with firm performance: A study of the engineering sector of Pakistan

Cited by 104 publications

References 32 publications

Capital Structure and Firm's Financial Performance: Evidence from Listed Cement Companies of Dhaka Stock Exchange of Bangladesh

Capital Structure and Firm's Financial Performance: Evidence from Listed Cement Companies of Dhaka Stock Exchange of Bangladesh

Capital Structure Influence on Construction Firm Performance

An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies

Contact Info

Product

Resources

About