Financial leverage and corporate performance: does the duration of the debt ratio matters

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

doi:10.1504/ijbem.2020.106200

Cited by 17 publications

(7 citation statements)

References 34 publications

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“…In a favorable economic environment, financial leverage can play a major role in maximizing shareholder wealth. In the same vein, many studies confirm the positive impact of financial leverage on corporate business success (Taqi et al 2020), while some research has shown that it can be a deadly factor for companies (Alarussi and Alhaderi 2018;Appiah et al 2020). For this reason, since most Iranian companies are under severe financial pressure due to financial problems caused by economic sanctions, the importance of evaluating the role of financial leverage as a control variable in this study is prominent.…”

Section: Vaic = Cee + Hce + Scementioning

confidence: 75%

Social Capital, Intellectual Capital, and Audit Fee: Conflicting Evidence from Iran

et al. 2022

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In the current study, we investigate the impacts of social capital (SC) and intellectual capital (IC) on audit fees among the companies listed on the Tehran Stock Exchange (TSE). Since the criteria for the norms and the networks are extremely correlated, we used a principal component analysis (PCA) to construct an index of social capital for each province between 2011 and 2016. The Pulic model is also used as a proxy for measuring value added intellectual capital (VAIC). The ordinary least squares (OLS) regression is employed in this study to test our research hypotheses as well. According to the research literature, on the one hand, investors and lenders can be more confident in the financial reporting honesty of the firms headquartered in areas with high social capital; on the other hand, auditors judge the trustworthiness of their clients based on where the firm is headquartered. Inconsistent with the prior studies, our findings show that companies headquartered in provinces with high social capital pay higher audit fees. Given that Iranian firms are under heavy financial pressure due to economic sanctions, those companies located in areas with higher social capital likely have abused the high level of trust that auditors and other groups in the market have in them and participated in earnings manipulation to mask their weak financial performance. Among the various components of IC, we found strong evidence that employed capital efficiency (ECE) and audit costs correlated positively. In short, this paper sheds light on the fact that severe financial pressures on managers may sometimes lead them to take advantage of the dark side of social capital and intellectual capital when preparing financial reports.

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Section: Vaic = Cee + Hce + Scementioning

confidence: 75%

Social Capital, Intellectual Capital, and Audit Fee: Conflicting Evidence from Iran

et al. 2022

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“…Moreover, several empirical studies show that short-term debt has a significant and positive effect on corporate OE [ 56 , 57 , [67] , [68] , [69] , [70] , [71] ]. However, from the corporate perspective, long-term debt offers protection from credit supply shocks and from having to restructure and/or refinance in bad times, facilitating long-term investments and improving corporate OE, which also buffers corporate managers from the regular monitoring that short-term debt requires as it comes up for renewal [ 42 , 46 , 72 , 73 ].…”

Section: Literature Reviewmentioning

confidence: 99%

Effective risk management in the shadow of COVID-19 pandemic: The evidence of Indonesian listed corporations

Huang

Kombate

et al. 2023

Heliyon

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“…As long as a firm has more debt in comparison to equity and preference capital, the company is assumed to be more levered [53,167]. Different evidence has shown financial leverage not only has a positive impact on corporate performance [167,168], but it also affects firm value negatively [169][170][171].…”

Section: Research Model and Variablesmentioning

confidence: 99%

Corporate Social Responsibility Disclosure (CSRD) and Financial Distressed Risk (FDR): Does Institutional Ownership Matter?

et al. 2022

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This study aims to investigate the effect of corporate social responsibility disclosure (CSRD) on financial distressed risk (FDR) among firms listed on the Tehran Stock Exchange (TSE). This paper also examines whether there is a negative linkage between institutional ownership as a corporate governance mechanism and corporate bankruptcy. The final research purpose is to analyze if there is a moderating effect of institutional owners on the relationship between CSRD and FDR too. The study sample consists of 200 firms listed on the TSE between 2013 and 2018, and the statistical model is logistic regression. When FDR is assessed under both Article 141 of Iran’s business law and the Altman Z-score model, our results on the main research hypotheses are quite similar. Considering the social and cultural conditions and economic situation of the Iranian market, the results show that firms with a high level of CSR disclosure are not able to make themselves more creditworthy and do not have better access to financing, resulting in more financial insolvency. Our findings confirm institutional shareholders play a vital role in facilitating a firm’s emergence from bankruptcy. The results also demonstrate financial distress risk is less seen among companies with more institutional owners that disclose more CSR information. In other words, since the goals related to CSR are long-term and Iranian institutional investors have a long-term horizon towards the company, the presence of more institutional owners within a firm push managers to provide additional voluntary CSR disclosure so firms can maintain the trust of their shareholders at the highest possible level and prevent financial distress. Our additional analysis indicates there is a positive association between financial leverage and firm failure, whereas the current ratio and ROA are negatively connected with corporate bankruptcy. Finally, when FDR is assessed on the Altman Z-score model, our evidence supports a negative relation between purchase and sale-related party transactions and bankruptcy risk, which is consistent with the efficient transaction hypothesis.

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Financial leverage and corporate performance: does the duration of the debt ratio matters

Cited by 17 publications

References 34 publications

Social Capital, Intellectual Capital, and Audit Fee: Conflicting Evidence from Iran

Social Capital, Intellectual Capital, and Audit Fee: Conflicting Evidence from Iran

Effective risk management in the shadow of COVID-19 pandemic: The evidence of Indonesian listed corporations

Corporate Social Responsibility Disclosure (CSRD) and Financial Distressed Risk (FDR): Does Institutional Ownership Matter?

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