Impact of Leverage on Corporate Profitability: A Study on Listed Financial Sector in Sri Lanka

Tharshiga, P; Subramaniam,; Anandasayanan, S.

doi:10.2139/ssrn.2849683

Cited by 8 publications

(15 citation statements)

References 3 publications

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“…We find an inverse relationship between DOL and MVA, but the relationship is insignificant ( p -value stands at 0.20), as presented in Equation (2) and Table 3. Previous literature also found a negative relationship with profitability (Murugesu & Subramaniam, 2016). DOL shows a negative relation with profitability because of an increase in operating fixed costs caused by a rise in operating leverage.…”

Section: Empirical Findingsmentioning

confidence: 83%

“…Few other researchers found no linear relationship between the above two variables (Asraf & Desda, 2020;Sen, 2018). Some researchers found a positive relationship between DOL and profitability (Chandrakumarmangalam & Govindasamy, 2010;Chen et al, 2019;Kumar, 2014;Mseddi & Abid, 2010;Murugesu & Subramaniam, 2016), while some others evidenced a negative relationship; Baker (1973), Selling and Stickney (1989). Also, many studies conclude that there is no significant relationship between DOL and profitability (Asraf & Desda, 2020;Sen, 2018).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…In earlier literature, mixed results were found on the relationship between DFL, DOL, and the firm’s profitability. Some researchers found a direct relationship between DFL and profitability (Chandrakumarmangalam & Govindasamy, 2010; Kumar, 2014; Mseddi & Abid, 2010; Murugesu & Subramaniam, 2016), while some others observed a negative relationship (Ahmad et al, 2015; Gatsi et al, 2013; Kaur & Kaur, 2015; Khodaei Valahzaghard & Taherinejhad, 2012). Few other researchers found no linear relationship between the above two variables (Asraf & Desda, 2020; Sen, 2018).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

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The Impact of Leverages and Operating Efficiency on Market Value Added: Empirical Evidence from India

Kumar

Bhatia

Chattopadhyay

2021

Vision: The Journal of Business Perspective

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This article examines the relationship between the market value added and degree financial leverage, degree of operating leverage, and asset turnover ratio of the listed firms in India. The period of study was from 2013 to 2019, and data were collected in annual frequency. Our study concludes that the degree of financial leverage and asset turnover ratio are significantly and negatively associated with the market value added of listed firms in India. We also reported an insignificant relationship between market value added and degree of operating leverage. Our results indicate that promoters holding and firm size are important factors driving the performance of the firms listed in India.

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Section: Empirical Findingsmentioning

confidence: 83%

Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Hypothesis Developmentmentioning

confidence: 99%

See 1 more Smart Citation

The Impact of Leverages and Operating Efficiency on Market Value Added: Empirical Evidence from India

Kumar

Bhatia

Chattopadhyay

2021

Vision: The Journal of Business Perspective

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“…(2012), Murugesu et al. (2013), and Ali (2020) on the negative relationship between ROA and corporate leverage. Next, previous papers (Nha et al., 2016; Nguyen et al., 2017; Vo, 2017) indicate that firms with higher tangible assets tend to increase their leverage because they can use these assets as collateral for long‐term debts.…”

Section: Methodsmentioning

confidence: 96%

“…Firms with higher investment opportunities are more likely to increase their leverage because of low debt financing costs (Chen and Zhao, 2006). We capture profitability by including return on assets (ROA) as suggested by Akhtar et al (2012), Murugesu et al (2013), and Ali (2020) on the negative relationship between ROA and corporate leverage. Next, previous papers (Nha et al, 2016;Nguyen et al, 2017;Vo, 2017) indicate that firms with higher tangible assets tend to increase their leverage because they can use these assets as collateral for long-term debts.…”

Section: Control Variablesmentioning

confidence: 99%

Corruption and corporate leverage in an emerging economy: The role of economic freedom

Doan

Truong

Nguyen

et al. 2022

Ann Public Coop Econ

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This study investigated the effects of corruption and economic freedom on corporate leverage. We also evaluated how economic freedom shapes the effect of corruption on corporate leverage. Using a sample of Vietnamese firms covering a nine‐year period from 2010 to 2018, we find evidence that increased control of corruption has a significant positive impact on firm leverage, whereas the opposite is true for economic freedom. This effect is robust to alternative measures of control of corruption as well as advanced estimation methods, such as firm‐fixed effects and quantile regressions. Our results also reveal that the positive impact of corruption controls on corporate leverage is more pronounced for firms with high economic freedom. Econometrically, our findings indicate that firms with better control over corruption prefer debt financing, as demonstrated by their higher leverage ratio.

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Cash conversion cycle and financial performance: evidence from manufacturing firms of Bangladesh

Karim

Mamun

Kamruzzaman

2023

AJEB

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PurposeThe purpose of the present study is to determine how the cash conversion cycle (CCC) affects the financial performance of manufacturing companies in Bangladesh.Design/methodology/approachThe authors have collected data of 61 Dhaka Stock Exchange (DSE)-listed firms from the 10 distinct manufacturing industries of Bangladesh for 18 years, from 2003 to 2020. The data have been analyzed through the two-steps system generalized method of moment (GMM) regression model, using profitability indicators return on asset (ROA) and earnings per share (EPS) as dependent variables, while CCC has been used as the independent variable, whereas asset turnover (ATO) and financial leverage (LEV) were used as control variables to assess the relationship between the CCC and financial performance.FindingsThe findings indicated that CCC has a negative connection with profitability – ROA and EPS, with the connection between CCC and EPS being highly significant. This indicates that reducing the inventory conversion time, reducing the period of receivable collection and making payments to creditors with potential delays might help Bangladeshi manufacturing firms boost their profitability. In addition, the firm-specific characteristics, namely ATO and LEV significantly affect the firm's profitability.Research limitations/implicationsThe research was based only on secondary sources and information was scarce. This research was conducted to determine the impact of the CCC on the corporate profitability of the manufacturing sector solely. There might be many other working capital variables that are still unexplored through this study.Practical implicationsThe current study's findings are consistent with the traditional rule that minimizing the firm's days of the cash cycle may optimize financial performance. The results of this research have added to the existing body of knowledge on the topic of working capital management (WCM). Future research endeavors can be initiated for assessing the impact of the CCC on the firm's profitability in other industrial sectors or to identify other working capital variables that have much impact on corporate profitability.Originality/valueThis study is an original work of the researchers and adds value to the current literature in the domain of WCM and corporate profitability. The present study is the first one that covers firms in all the manufacturing industries in Bangladesh. The corporate managers, creditors, investors and other concerned stakeholders will be benefited from the findings of the present study.

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Impact of Leverage on Corporate Profitability: A Study on Listed Financial Sector in Sri Lanka

Cited by 8 publications

References 3 publications

The Impact of Leverages and Operating Efficiency on Market Value Added: Empirical Evidence from India

The Impact of Leverages and Operating Efficiency on Market Value Added: Empirical Evidence from India

Corruption and corporate leverage in an emerging economy: The role of economic freedom

Cash conversion cycle and financial performance: evidence from manufacturing firms of Bangladesh

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