Sales nationality and debt financing impact on firm’s performance and risk

Abstract

Purpose The purpose of this paper is to examine the impact of debt financing on both performance and systematic risk in Amman Stock Exchange listed firms. The authors focus the study to analyze the differences between services and industrial firms in one sense and the differences between international and domestic firms in the other sense, as the study depends on the geographical distribution of sales to classify the nationality of firms. Design/methodology/approach The study sample includes all listed Jordanian firms in Amman Stock Exchange from 2005 to 2013 for both industrial and services sectors. Using panel data techniques, fixed effects regression with modified Driscoll-Kraay standard error as a remedy for heteroscedasticity problem is employed. Findings The results show that there is a significant negative impact of debt financing on the firm’s performance, where the sector and the sales nationality play an important role. Moreover, the results indicate that there is a significant positive impact of debt financing on the firm’s systematic risk. Taking the sector and sales nationality into consideration, the authors find that the debt financing has no significant impact on the systematic risk of services firms and domestic firms. Additionally, the findings indicate that services firms and international firms are, on average, more riskier than industrial firms and domestic firms, respectively. Originality/value The paper provides a visibility on the comparison between international and local firms in Jordan in terms of the impact of debt financing on the financial performance and systematic risk in one research.

The effect of risk leverage on investors’ preferences in manufacturing companies listed on the Indonesia Stock Exchange

“…Debt is related to risks. Several previous studies have provided these results (Ahmad & Qais, 2017;Akbari & Mohammadi, 2013;Bhatti et al, 2010;Dunn, 2001;Puspitaningtyas, 2017;Rashid, 2014). There is a correlation between debt and risks, where the higher the debt, the higher the risks.…”

“…Further, a study was conducted toward the debt financing and risks in companies in Jordan (Khasawneh & Dasouqi, 2017). The result shows that debt financing has a significant positive correlation to the systematic risks.…”

“…Based on some of the previous studies, leverage has correlation with profitability and risk. Profitability which is measured by return on assets describes the earning from invested capital (Khasawneh & Dasouqi, 2017). The return on assets shows the management efficiency of the enterprise's assets and is also a positive measure of firm value (Chen & Chen, 2011).…”

“…There are many studies that have discussed the work performance related to debt. In addition to the work performance, risks existing in the company can also be observed (Ahmad & Qais, 2017). Investors with knowledge on the relationship between leverage and risks will be helpful in determining the risks of the company's stock on the capital market (Akbari & Mohammadi, 2013).…”

“…There is a correlation between debt and risks, where the higher the debt, the higher the risks. Leverage has a positive correlation with the systematic risk (Ahmad & Qais, 2017;Bhatti et al, 2010;Dunn, 2001). To consider risks, work performance is important to discuss.…”