Leverage and firm performance: Empirical evidence from Indian food processing industry

Tripathy, Sasikanta; Shaik, Abdul Rahman

doi:10.5267/j.msl.2019.11.035

Cited by 25 publications

(17 citation statements)

References 27 publications

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“…Tangibility does not have a significant effect on firm performance. It clarifies that fixed assets do not determine how effectively companies operate (Tripathy and Shaik, 2020; Alam et al , 2020).…”

Section: Resultsmentioning

confidence: 99%

Firm performance: the moderation impact of debt and dividend policies on overinvestment

Nguyen‐Trong

Nguyen

2020

JABES

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PurposeDebt, dividend and investment policy constitutes a company's important financial decisions to determine firm performance. The research emphasizes on the problem of overinvestment, a phenomenon that worsens firm operation. Furthermore, it clarifies the moderation role of debt and dividend policy in mitigating the negative effect of overinvestment on firm performance in the case of Vietnamese listed companies.Design/methodology/approachThe research uses all financial statement of non-financial Vietnamese listed companies on Ho Chi Minh and Hanoi Stock Exchange in the period of 2008–2018. The data are collected from Thomson Reuters Eikon. The final data set is comprised of 669 listed companies. The study measures overinvestment though investment demand function and HP filter. Moreover, the research employs the dynamic model, so it has to apply the SGMM method to deal with the problem of endogeneity caused by the lagged dependent variable.FindingsThe research finds that overinvestment is negatively associated with firm performance. Debt or dividend policy separately can moderate the negative effect of overinvestment on firm performance. However, when these two policies are combined, they lessen the positive interaction impact of each policy due to the substitution between debt and dividend policy.Research limitations/implicationsThe research may have two limitations. Firstly, the research measures overinvestment indirectly through investment demand function and HP filter. These two measures only help identify the sign that companies may have the problem of overinvestment because we cannot determine whether they overinvest or not in reality. Secondly, when using interaction variables, the problem of multicollinearity may be higher, and this may adjust the signs and significance level of variables in the models.Practical implicationsPractically, the research proposes three policy recommendations. Firstly, a company can exploit debt or dividend policy to limit excessive free cash flow in order to constrain the problem of overinvestment. Secondly, a company should enhance its corporate governance to resolve agency problems. Thirdly, the government should make the financial sector more transparent and effective to improve monitoring functions of various parties in the capital market.Social implicationsOverinvestment sometimes can cause social issues. Overinvestment means that companies make ineffective investment. If they continue this situation over a long time, companies may have financial distress or even go bankruptcy. As a result, it will slow down economic growth and increase unemployment in the economy.Originality/valueThe research is supposed to make two great contributions to the existing empirical studies in two aspects. Firstly, it is the first attempt to take into consideration the interaction between overinvestment and financial policies. Secondly, it helps enhance the fundamental stance of the agency theory, which supports the interdependence of debt, dividend and investment policy.

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Section: Resultsmentioning

confidence: 99%

Firm performance: the moderation impact of debt and dividend policies on overinvestment

Nguyen‐Trong

Nguyen

2020

JABES

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“…Many empirical studies have investigated the link between financial leverage and financial performance determinants in different counties (Ebaid, 2009;Bajaj et al, 2019;Dawar, 1984;Tripathy & Rahman, 2020;Mardones & Cuneo, 2020;Deesomsak et al, 2004). Ebaid (2009) examined the effect of preference of capital structure on firm success in Egypt as one of the developing or transformation economies.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Empirical studies of capital structure in different countries Although there are many empirical studies(Dawar, 1984;Chakrabarti & Ah. Chakrabarti, 2019;Tripathy & Rahman, 2020) that tested the determinants of capital structure in India, they ignored the influence of financial performance determinants and firms' liquidity factors on financial leverage of 1,333 Indian listed firms from 2007 to 2018. To the best of the authors' knowledge, this is the first empirical study that addresses this issue during the study period.The main objective of this review is to investigate the determinants of financial performance, firm liquidity and leverage ratio of Indian listed firms.…”

mentioning

confidence: 99%

An empirical analysis of financial leverage and financial performance: Empirical evidence from Indian listed firms

Senan

Ahmad

Anagreh

et al. 2021

Investment Management and Financial Innovations

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The purpose of this paper is to examine the determinants of financial performance, firm liquidity and financial leverage of Indian listed firms. This study uses both static models (pooled, fixed, and random effects) and Generalized Moment Methods (GMM). Financial leverage (FINLE) is defined by the ratio of total liabilities to total assets, whereas the current ratio and the quick ratio are used as firm liquidity factors. Further, a set of financial performance determinants such as return on assets, profit after tax, return on capital employed, return on equity, and Tobin-Q are used as independent factors. The results indicated that profit after tax, return on equity, return on capital employed, and Tobin-Q are the most significant financial success variables that influence financial leverage of Indian listed companies. Furthermore, profit after tax, return on capital invested, return on equity, and Tobin-Q are considered to have a substantial effect on financial leverage among the financial success indicators. In the case of firm liquidity, the findings show that the current ratio and the quick ratio have a substantial effect on the financial leverage of Indian listed companies.

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“…Funding decisions both internal and external funding are important in supporting the firm operational activities. Some theories explain that the company will choose the funding structure by taking the basis of various benefits and costs associated with external funding through debt and equity [8]. Liquidity is called the company's ability to meet short-term financial obligations, the company's liquidity is indicated by the amount of small or small liquidity assets [9].…”

Section: Connection Between Liqudity and Capital Structurementioning

confidence: 99%

“…Firm size And Capital Structure The size of the firm explains that the larger the size of the firm, the firm prefers to internal funding through retained earnings [1]. The results showed negative results which means that the size of a company that is increasingly large will be more resistant to bankruptcy risk because companies prefer funding through retained earnings compared to debt or external funds [8]…”

Section: 35mentioning

confidence: 99%

Determinant of Capital Structure of Cigarette Firm Listed on IDX

Puspita¹,

Ruhamak²,

Perdana³

2021

Proceedings of the 2nd International Conference on Business and Management of Technology (ICONBMT 2020)

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This study aims to determine the determinants of capital structure of cigarette companies in Indonesia. The data used in this study are for period of 2015-2019. The sample used was a cigarette company registered in IDX Analysis using partial adjustment model to identify liquidity, profitability, growth opportunity, company size, business risk factors and NDTS on capital structure. The analysis shows variables that have a significant effect on tobacco companies vary between companies. The results of the study can be a consideration for company managers cigarettes in Indonesia to consider the current determinant factors make changes in capital or other financial decisions. Research result also provides information for investors related to investment risks in cigarette companies in Indonesia

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Leverage and firm performance: Empirical evidence from Indian food processing industry

Cited by 25 publications

References 27 publications

Firm performance: the moderation impact of debt and dividend policies on overinvestment

Firm performance: the moderation impact of debt and dividend policies on overinvestment

An empirical analysis of financial leverage and financial performance: Empirical evidence from Indian listed firms

Determinant of Capital Structure of Cigarette Firm Listed on IDX

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