BE/ME and E/P work better than ME/BE or P/E in regressions

Musumeci, Jim; Peterson, Mark A.

doi:10.1016/j.jcorpfin.2011.06.003

Cited by 9 publications

(3 citation statements)

References 34 publications

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“…Actually, as suggested by Musumeci and Peterson (2010), we use the BTM ratio rather than the MTB ratio, as the use of the former allows to reduce the potential presence of outliers, thus making the regression more significant.…”

Section: Methods and Modelmentioning

confidence: 99%

Market value and corporate debt: the 2006–2010 international evidence

Dell’Acqua

Etro

Teti

et al. 2013

Applied Financial Economics

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We analyse the differences in the financial debt level of firms both in market-oriented systems (the US, the UK) and bank-oriented systems (Germany, France and Italy) on a sample of 3360 listed companies between the period 2006 and 2010. Results indicate that the debt level is significantly higher in market-oriented systems when compared to the book value of equity. We find confirmation that Book-to-Market (BTM) cannot explain the debt level in bank-oriented systems but, contrary to reference literature, we observe that the BTM ratio has a negative influence on the debt level in market-oriented systems, especially in the United States. We claim different reasons to explain the evidence: (i) the financing standards of market-oriented countries, with an inflationary effect of market values on debt; (ii) an underlying activity for ownership protection and (iii) the unfavourable conditions of stock market over the years of the financial crisis that reduced the convenience of equity issuance.

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Section: Methods and Modelmentioning

confidence: 99%

Market value and corporate debt: the 2006–2010 international evidence

Dell’Acqua

Etro

Teti

et al. 2013

Applied Financial Economics

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“…Thus, including the number of voluntary ideation ties at t = 1 as a control allows us to compare the relative damage done to one's voluntary ideation networks, as we regress the value of this control variable against our dependent variable, the number of ideation ties (in-degree centrality) an individual employee maintains in the voluntary ideation network after downsizing. 1 Given the relative large number of zeros in our network-derived count variable we opt for the use of directly comparing both absolute values (pre and postdownsizing tie counts) instead of a ratio variable on this point, as regressing with ratio components of this type have been found to produce more outliers and a lower noise reduction, making the significance of other variables more difficult to detect (Lien, Hu, & Liu, 2017;Musumeci & Peterson, 2011). In-degree centrality, as a measure of the number of times that others report having a relation with someone, is regarded as more reliable than the self-reported out-degree measure and thus considered in this study as the indicator of the number of voluntary ideation ties pre and post downsizing (c.f.…”

Section: Control Variablesmentioning

confidence: 99%

Resilience of information flow during restructuring: Characterizing information value being exchanged and the structure of a network under turmoil

Aalbers

Dolfsma

2019

Journal of Business Research

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“…Thus, the credit policy of banks is dynamic and depends on market conditions. Further, this paper offers empirical support for the growing body of nonlinear modelling in the finance literature (Abuzayed et al , 2018; Ammar and Boughrara, 2019; Brana et al ., 2019; Ngambou Djatche, 2019; Gambacorta and Rossi, 2010; Gambacorta et al ., 2014; Jiang et al ., 2019; Jiménez, Lopez and Saurina, 2013; Lien et al ., 2017; Martinez-Miera and Repullo, 2010; Musumeci and Peterson, 2011).…”

Section: Introductionmentioning

confidence: 99%

Nonlinear linkages between bank asset quality and profitability: evidence from dynamic and quantile approaches using a global sample

Alqahtani

Hamdi

Skully

2021

IJMF

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PurposeThe purpose of this study is to examine whether the relationship between asset quality and profitability is linear or nonlinear, using a global dataset containing 2,943 banks from advanced and emerging economies.Design/methodology/approachThe authors use the U-shape test to investigate the existence of a nonlinear relationship between asset quality and profitability. In addition, the dynamic panel generalised method of moments (GMM) and quantile regression are used to examine the nonlinear effect of profitability on nonperforming loans (NPLs).FindingsAfter controlling for macroeconomic and bank internal factors, the authors find empirical evidence supporting the existence of a nonlinear relationship in the form of a U-shape. This is also confirmed through the three-stage U test procedure. After distinguishing between advanced and emerging economies, the authors also find that, in advanced markets, the credit policy responds more rapidly to changes in credit market conditions than in emerging markets, providing insights into credit market dynamics.Research limitations/implicationsFurther research can check the robustness of this study’s findings in different markets and investigate the existence of nonlinearity in other bank variables.Practical implicationsIn a nutshell, the results demonstrate potential implications for policymakers who need to carefully monitor banks' lending behaviour to ensure that banks do not lower lending standards. In addition, banking regulators and supervisors should consider the possible nonlinear relationship in their risk assessments and macrostress tests. Further, these results are important for bank managers, who should monitor the performance of their loan portfolios to ensure that their credit officers do not lower credit standards. Likewise, for banks located in an emerging economy, investing in human capital and advanced technologies can enable them to respond more effectively to changes in the credit market.Originality/valueTo the best of the authors' knowledge, this study is considered the first to provide empirical evidence for the nonlinear relationship between asset quality and profitability.

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BE/ME and E/P work better than ME/BE or P/E in regressions

Cited by 9 publications

References 34 publications

Market value and corporate debt: the 2006–2010 international evidence

Market value and corporate debt: the 2006–2010 international evidence

Resilience of information flow during restructuring: Characterizing information value being exchanged and the structure of a network under turmoil

Nonlinear linkages between bank asset quality and profitability: evidence from dynamic and quantile approaches using a global sample

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