The Impact of Capital Structure on the Profitability Performance of ICT Firms

Abstract

Information and communication technology (ICT) companies strive for ceaseless innovation to remain competitive while facing the challenge of maximizing firm value (FV) with limited resources, and increasing the interests of shareholders. However, capital structures have a considerable effect on FV, and the literature still disagrees with the optimum structure in specific industries and countries. Therefore, this study evaluates the FV of ICT companies in terms of profitability efficiency using data envelopment analysis. In addition, this study applies a Tobit regression and Kruskal-Wallis one-way ANOVA to identify the impact of leverage, liquidity, and firm size, which are major capital structure factors influencing FV. The analysis yields three main results. First, in the ICT industry, small and medium companies tend to have better profitability efficiency than companies of other sizes. Second, only small and medium ICT manufacturing companies’ profitability efficiency is positively impacted by the current ratio. Third, only mid-sized service companies’ profitability efficiency is positively impacted by the debt-equity ratio. The results have policy and practical implications for improving the FV of ICT companies.

Capital Structure and Financial Performance of Micro-Finance Institutions in Mombasa County, Kenya

“…The regression results showed that capital structure had a positive and significant effect on financial performance of microfinance institutions in Mombasa County, Kenya. The results are consistent with the results of Kim et al (2023) which indicated that capital structure has a positive and significant effect on the profitability performance of firms.…”

“…In the South Korean context, Kim, Jung, and Kim (2023) examined the influence of capital structure on the profitability performance of information and communication technology (ICT) firms. The results indicated that capital structure had a positive and significant effect on the profitability performance of ICT firms.…”

Inspecting sector-specific capital structure determinants: The case of Malaysian Shariah firms

“…Notably, the prior investigations indicate that the Malaysian firms' capital structure holds dynamic properties (Halim et al, 2019). However, few studies investigate dynamic capital structure determinants for Malaysian Shariah-tagged firms and focus more on executing traditional methodology (Abdul Hadi et al, 2015;Kim, Jung, & Kim, 2023;Nejad & Wasiuzzaman, 2013). Therefore, this inquiry selected an efficient econometric estimator, i.e., Generalized Method of Moments(GMM).…”

كيف يُعدل هيكل رأس المال العلاقة بين سياسة توزيع الأرباح وأداء الشركات في مصر؟ باللغة الانجليزية)

“…As long as the advantages of the tax shelter outweigh the disadvantages of financial difficulty, the trade-off theory predicts that enterprises can raise their value by employing debt financing. (Ahmed et al, 2023;Akinrinola et al, 2023;Akmalia, 2023;Ali et al, 2022;Almomani et al, 2022;Hussein, 2020;Irawan et al,2022;Kim et al, 2023;Maina & Jagongo, 2022;Maneerattanarungrot & Donkwa, 2018;Mills & Mwasambili, 2022;Ngoc et al, 2021;Oktrima & Sutrisno,2023;Olusola et al, 2022). However, a few studies found insignificant or adverse effects of capital structure on firm performance (Pandey & Sahu, 2023;Sakr & Bedeir, 2020).…”

“…Managers, stockholders, and creditors all having competing interests can lead to agency costs that reduce firm performance and increase the cost of debt. When certain parties have access to more or better knowledge than others, it can lead to issues with adverse selection and moral hazard when attracting outside funding (Hussein, 2020;Irawan et al,2022;Kim et al,2023).…”