The Relationship of Corporate Governance Decision on Capital Structure and Company’s Performance: Evidence From Lithuanian Food and Beverages Industry Companies

Abstract

Capital structure is the problem regularly approached in theoretical and empirical studies; however it does not give any consensus whether the growing use of loan capital leads to increase or decrease in the efficiency of company's performance. Many of the empirical researches evidenced that the capital structure has a significant negative impact on the efficiency of corporate performance; some studies showed a positive relationship. The results of our research confirmed the results of first studies: all the selected ratios of capital structure negatively correlated with the efficiency of the company's performance. Since it was established a significant relationship, we conclude that the performance efficiency is related to debt level to a large extent. Moreover, the capital raised in this way did not condition more effective performance and is not associated with the implementation of fast-track, profitable projects, that would allow these companies to ensure the growth of performance efficiency.

The Issues of the Management of Receivables: Lithuanian Case

“…The author proposed that a company's ability to react to ongoing changes as well as business managers' knowledge, perception and comprehension highly determines business success and general existence. This attitude was supported by Norvaišienė and Stankevičienė (2012), with reference to whom, debt level influences not only business activities but also operational results.…”

“…In accordance with Norvaišienė and Stankevičienė (2012), debtors usually believe that they will be able to pay all their creditors. Mackevičius and Rakštelienė (2005) argued that indebtedness, in fact, causes numerous economic and social problems not only for business companies but also for the state.…”

“…However, supplier's credit and assurance of discounts for earlier payment allow to employ this measure Boissay (2004) Receivables determine information asymmetries among companies, suppliers and banks Lamminmaki, Leitch (2011) Receivables refer to a sales policy measure that allows to attract new customers Snieška, Drakšaitė (2013) Receivables allow to reduce transaction costs in case of frequent purchases Owusu-Manu et al (2014) Receivables provide an access to capital for construction contractors globally and is an important source of finance in both developed and developing countries Chludek (2011) Employment of receivables has some cost saving advantages; receivables offer flexibility (by offering the possibility to pay invoices flexibly within a certain time frame, trade credit use improves cash flow synchronisation, in this way reducing the (opportunity) costs of paying and managing invoices); receivables are generally automatically granted at purchase by the supplier's general terms and conditions, so that financing is directly available at purchase, thereby avoiding the transaction costs associated with the procurement of other funds; receivables serve as implicit quality insurance because the customer can inspect the quality of delivered goods or services during the net period, verifying quality before payment. Badu et al (2012) Employment of receivables serves as a financial intermediation device whereby construction vendors act as financial providers to their customers through deferred payments of goods purchased Norvaišienė, Stankevičienė (2012) Receivables promote customers' trust in an enterprise and speak about the ability of this enterprise to operate flexibly Boden, Paul (2014) Managed effectively, receivables can confer competitive advantage in terms of information and signalling, customer relationships and financing of working capital Han et al (2013) Receivables (or trade credits), as one off substitution, give another access to SME finance Nobanee, Abraham (2015) Receivables are used as a sales policy measure; they allow to adjust sensitivity of working capital management to the conditions of market imperfection…”

The Effect of Capital Structure on Earnings Per Share of Publicly Traded Companies: A Review of Related Literature

“…The result showed a negative relationship between capital structure and earnings per share. In another effort, Norvaišienė and Stankevičienė, (2012) investigated the relationship between capital structure and performance of Lithuania's food and beverage companies from 2005-2010. They employed "return on capital (ROC), return on equity (ROE), return on assets (ROA), earnings per share (EPS), operating margin and net profit margin" as indicators of performance.…”

Impact of Value Relevance of Financial Performance Information and Corporate Governance on Capital Structure : Evidence from Egyptian Manufacturing Firms

“…As it impact the company's performance and the value created to shareholders, in terms of maximizing their return on investment, and it affects the company's ability to conform to competitive and rapidly changing economic environment. Therefore, it is necessary to establish such a debt-equity ratio that would ensure a balance and stability of the company's performance (Norvaišiene and Stankevičiene 2012).…”