Profitability and optimal debt ratio of the automobiles and parts sector in the Euro area

Abstract

PurposeThe goal of this paper is twofold: to assess the influence of specific corporate and market features on automobiles and parts sector's profitability in Euro area and to identify this particular sector's optimum debt level.Design/methodology/approachFor the paper's purposes, the authors applied a panel data analysis on an annual basis for the period 2005–2017.FindingsThere is a strong statistical significance of debt ratio, growth domestic product per capita growth, E.C.'s economic sentiment index (ESI), the European Central Bank key interest rate and the Euro area crisis on sector's profitability, while weak statistical significance appears to emerge for the firm's size. Moreover, the authors find average 14.4% profitability for the entire sector of the Euro area, without significant fluctuations among firms and/or during the examined time period. Another interesting finding of this study is that results are consistent with the theory of Modigliani Miller that financial leverage at a “low” level is beneficial for the firm, but beyond a turning point, it becomes counterproductive. This turning point for the automobiles and parts sector in Euro area has been computed at 47.3%.Originality/valueThe paper focuses on issues of profitability, capital structure and optimal debt ratio of an important sector of the economy, the automotive sector. As regards the Euro area automotive sector, it is a dynamic sector with a significant multiplier effect for the European economy as it is strongly correlated with other industrial sectors as chemicals, steel, textiles, information technology and so forth, having an outstanding multiplier effect on the economy.

Profitability and optimal debt level of large firms in Serbia

“…Quadratic model: concave, nonlinear, and statistically significant relationship in small and medium enterprises. This research is in line with the research of Ngo, Tram and Vu (2020) on the example of listed firms in Vietnam, the research of EU car companies(Basdekis et al, 2020) and the research of listed companies in Indonesia (Raharja and Mranani, 2019).…”

“…The average ROA values were adjusted after applying the Winsorizing method in STATA due to extreme values. The value of ROA is comparable to the ratios presented by listed firms in Romania 3.9%(Vătavu, 2016) and below those recorded in the trade sector in France 5.8%(Kebewar, 2013), listed firms in Vietnam 8.02%(Ngo et al, 2020) and the car industry in EU 14.4%(Basdekis et al, 2020). The average value of debt ratios for large Serbian firms is 59.17% with a standard deviation 0.3768.…”

“…On the other hand, the quadratic model, concave, and nonlinear relationship are shown in analysis of the listed companies in Indonesia (Raharja and Mranani, 2019), EU car industry (Basdekis et. al., 2020), and the listed companies in Vietnam (Ngo et.…”

“…Nazir et. al., 2021;Basdekis et. al., 2020), the inflation also has positive but not statistically significant impact on profitability(Stančić et.…”

Analisis Kinerja Keuangan Sektor Farmasi Yang Terdaftar Di BEI Sebelum Dan Saat Covid-19

“…Analisis rasio profitabilitas digunakan untuk mengetahui kemampuan perusahaan dalam mengelola perusahaan yang efektif, yang dibuktikan dengan perolehan laba selama periode tertentu (Gitman & Chad, 2012). Nilai rasio profitabilitas yang tinggi akan diminati oleh investor, karena menunjukkan bahwa pengelolaan aset, modal, dan biaya perusahaan yang efektif (Basdekis et al, 2020).…”