The Impact of Capital Structure on Risk and Firm Performance: Empirical Evidence for the Bucharest Stock Exchange Listed Companies

Nenu, Elena Alexandra; Vintilă, Georgeta; Gherghina, Ştefan Cristian

doi:10.3390/ijfs6020041

Cited by 74 publications

(67 citation statements)

References 107 publications

(143 reference statements)

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“…For example, ROA for above and below median regression has a coefficient of 0.024 (t = 6.93) and −0.015 (t = −4.48) and this consistency prevails more or less across the estimates. Table 8 reports the dynamic panel model results using system GMM estimation technique (used in line with Nenu et al 2018;Wafa and Hédi 2018). The sign and significance of coefficients suggest that our results do not differ qualitatively from fixed effects, and reported multivariate regressions estimates, largely.…”

Section: Robustness Checks Resultsmentioning

confidence: 88%

Firm’s Risk-Return Association Facets and Prospect Theory Findings—An Emerging versus Developed Country Context

Gupta¹,

Pathak²

2018

Risks

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A risk-return association under normal market conditions can be conventional positive (risk-averse) or "paradoxical" negative (risk seeking). This study has the objective to investigate whether such an association is stable across market trends (i.e., bull and bear) and for overall, industry-classified and partitions sub-samples after controlling for a firm's age, size, leverage and liquidity using operating performance risk-return measures. In total, this study analyses 2666 firms (1199 firms from 15 developed countries and 1467 firms from 12 emerging countries) for the period of 1999-2015. Results show that in the overall and bull sub-periods, firms across countries are showing conventional positive (superior firms) and "paradoxical" negative (poor firms) in most cases. However, in the bear sub-periods all firms from emerging countries are risk seeking in order to maintain their position in the pecking order.Empirical literature associates managers' risk behavior with assumptions of rational behavior, outcome weighing and utility maximization. Financial theory also posits that risk-averse behavior manifests when low risk is associated with low return, as well as when high risk is rewarded by high return (Fisher and Hall 1969). This risk-averse outlook also assumes that for each strategic alternative, firms and managers would choose the alternative which maximizes utility (Schoemaker 1982). Aaker and Jacobson (1987) find support for a positive association between performance and both systematic and unsystematic risk, when risk is defined using accounting data. A number of other studies have also found support for a positive risk-return relationship (Bettis 1981).To provide a theoretical lens to explain the negative association between risk and return, scholars have drawn motivation from prospect theory (Fiegenbaum and Thomas 1988;Kahneman and Tversky 1979) and behavioral theory of the firm (Bromiley 1991). Under the behavioral theory of the firm, managers undertake more risk when performance is below aspiration, and they take low risk when performance is above aspirations. Due to the contemporaneous association between risk-taking and low performance, this relationship could be negative. This is due to lower performance and higher risk in cross-sectional accounting data, or lagging effects of risk and performance would continue in the short-term in longitudinal accounting data. On the other hand, prospect theory (Kahneman and Tversky 1979) studies argue that managers in low performing firms face negatively framed prospects and are thus more likely to undertake high risk. In contrast, managers in high-performing firms face positively framed prospects and take low risk. Both of these results would cause negative correlation between high performance and low risk. Thus, prospect theory and behavioral theory of the firm provide possible explanations for the negative risk-return relationships.The research hypotheses in these studies emphasizes on manager's and/or firm's attainment of above (below) returns in compariso...

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Section: Robustness Checks Resultsmentioning

confidence: 88%

Firm’s Risk-Return Association Facets and Prospect Theory Findings—An Emerging versus Developed Country Context

Gupta¹,

Pathak²

2018

Risks

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“…Hypothesis 6 (H6). There is a negative relationship between profitability and debt ratio (Alipour et al 2015;Chaklader and Chawla 2016;Cortez and Susanto 2012;Nenu et al 2018).…”

Section: Hypothesis 4 (H4)mentioning

confidence: 99%

Exploring the Determinants of Financial Structure in the Technology Industry: Panel Data Evidence from the New York Stock Exchange Listed Companies

Vintilă

Gherghina

Toader

2019

JRFM

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This paper aims to analyze the influencing factors on the financial structure of 51 companies listed on the New York Stock Exchange, in the technology industry, from 2005–2018. The objective is to see the impact of independent company-specific variables such as company size, tangibility of assets, growth opportunity, effective tax rate, current liquidity, depreciation, stock rotation, financial return, working capital, price to book value, price to earnings ratio, as well as the impact of governance variables and macroeconomic variables such as inflation rate, interest rate, market size, gross domestic product per capita. Using panel data and multiple linear regressions, we analyze the relationship between the independent variables listed above and the dependent variables, namely the total debt ratio, the long-term debt ratio and the short-term debt ratio. The results of the analysis showed that variables such as size, tangibility, liquidity, profitability have a significant influence on the dependent variables in accordance with the theories regarding the capital structure.

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“…This negative relationship between capital structure and firms' performance is consistent with several studies that challenge the traditional trade-off theory on optimum capital level argued that debt capital are introduced to maximise the shareholders' value or minimises. Pecky order theory has supported the negative relationship between short-term debt and long term debt on previous studies on transition countries by (Abor, 2007;Le & Phan, 2017;Nenu, Vintila & Gherghina, 2018;Zeitun & Tian, 2007).…”

Section: Conclusion and Recommendationsmentioning

confidence: 73%

Does Capital Structure Affects Firms’ Performance in Ghana? Panel Data Analysis

MacCarthy¹,

Ahulu²

2019

AFR

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This paper examines the effect of capital structure on the firms’ performance. The study collected data from seventeen firms listed on the Ghana Stock Exchange from 2009 to 2018. A quantitative research technique is used to collect data to test two hypotheses. Panel data regression is employed to determine the effect of capital structure on firms’ performance. The study revealed that short-term debt and total debt accounted for 67% and 76.3% respectively of capital used to finance the operations for the period. Furthermore, the study revealed that there is significant and negative relationship between capital structures and firms’ performance. The study concludes that firms should minimise the use of debt capital and rather concentrate on equity capital to finance their operations. The study recommends that firms should increase sales and invest in tangible assets to maximise the firms’ performance.

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The Impact of Capital Structure on Risk and Firm Performance: Empirical Evidence for the Bucharest Stock Exchange Listed Companies

Cited by 74 publications

References 107 publications

Firm’s Risk-Return Association Facets and Prospect Theory Findings—An Emerging versus Developed Country Context

Firm’s Risk-Return Association Facets and Prospect Theory Findings—An Emerging versus Developed Country Context

Exploring the Determinants of Financial Structure in the Technology Industry: Panel Data Evidence from the New York Stock Exchange Listed Companies

Does Capital Structure Affects Firms’ Performance in Ghana? Panel Data Analysis

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