The financial leverage–financial performance relationship in the emerging market of Turkey: the role of financial distress risk and currency crisis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ismail Kalash
Keyword(s):  
Firm Performance ◽  
Financial Performance ◽  
Financial Distress ◽  
Emerging Market ◽  
Currency Crisis ◽  
Ordinary Least Squares ◽  
Financial Leverage ◽  
Content Type ◽  
Distress Risk

PurposeThe purpose of this article is to examine how financial distress risk and currency crisis affect the relationship between financial leverage and financial performance.Design/methodology/approachThis study uses data of 200 firms listed on Istanbul Stock Exchange during the period from 2009 to 2019, resulting in 1950 firm-year observations. Pooled ordinary least squares, random effects, firm fixed effects and two-step system GMM models are used to investigate the hypotheses of this study.FindingsThe results reveal that financial leverage has negative and significant effect on financial performance, and that this effect is stronger for firms with higher financial distress risk. Furthermore, the findings provide moderate evidence that currency crisis exacerbates the negative association between leverage and performance.Practical implicationsThe results of this study have important implications for firms in emerging markets. Managers can enhance firm performance by reducing the level of financial leverage, especially in firms with higher financial distress risk. These firms incur higher debt costs, and then they can benefit more from the decreases in debt ratio in their capital structure. Moreover, the decreases in debt level have more importance in currency crisis times, when the access to external finance becomes more expensive and more difficult.Originality/valueTo the author's knowledge, this research is the first to examine the effect of currency crisis on the financial leverage–financial performance relationship and is one of few that investigate the role of financial distress risk in determining the linkage between leverage and firm performance.

The effects of corporate governance on financial performance and financial distress: evidence from Egypt

2015 ◽  
Vol 15 (5) ◽  
pp. 641-662 ◽  
Author(s):  
Tamer Mohamed Shahwan
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Performance ◽  
Financial Distress ◽  
Emerging Market ◽  
Negative Relationship ◽  
Positive Association ◽  
Time Frame ◽  
Content Type

Purpose – This paper aims to empirically examine the quality of corporate governance (CG) practices in Egyptian-listed companies and their impact on firm performance and financial distress in the context of an emerging market such as that of Egypt. Design/methodology/approach – To assess the level of CG practices at a given firm, the current study constructs a corporate governance index (CGI) which consists of four dimensions: disclosure and transparency, composition of the board of directors, shareholders’ rights and investor relations and ownership and control structure. Based on a sample of 86 non-financial firms listed on the Egyptian Exchange, the effects of CG on performance and financial distress are assessed. Tobin’s Q is used to assess corporate performance. At the same time, the Altman Z-score is used as a financial distress indicator, as it measures financial distress inversely. The bigger the Z-score, the smaller the risk of financial distress. Findings – The overall score of the CGI, on average, suggests that the quality of CG practices within Egyptian-listed firms is relatively low. The results do not support the positive association between CG practices and financial performance. In addition, there is an insignificant negative relationship between CG practices and the likelihood of financial distress. The current study also provides evidence that firm-specific characteristics could be useful as a first-pass screen in determining firm performance and the likelihood of financial distress. Research limitations/implications – The sample size and time frame of our analysis are relatively small; some caution would be needed before generalizing the results to the entire population. Practical implications – The findings may be of interest to those academic researchers, practitioners and regulators who are interested in discovering the quality of CG practices in a developing market such as that of Egypt and its impact on financial performance and financial distress. Originality/value – This paper extends the existing literature, in the Egyptian context in particular, by examining firm performance and the risk of financial distress in relation to the level of CG mechanisms adopted.

Ownership concentration and firm performance in Indian firms: does investor protection quality matter?

2018 ◽  
Vol 10 (1) ◽  
pp. 33-52 ◽  
Author(s):  
Nufazil Altaf ◽  
Farooq Ahamad Shah
Keyword(s):  
Firm Performance ◽  
Emerging Market ◽  
Investor Protection ◽  
Generalized Method Of Moments ◽  
Ordinary Least Squares ◽  
Ownership Concentration ◽  
Content Type ◽  
Dynamic Perspective ◽  
Moderating Role

Purpose The purpose of this paper is twofold: first, to investigate the relationship between ownership concentration and firm performance and, second, to determine the moderating role of investor protection quality on the ownership concentration-performance relationship from a dynamic perspective. Design/methodology/approach The study is based on secondary financial data of 236 Indian manufacturing firms obtained from CAPITALINE database, pertaining to a period of five years. This study uses ordinary least squares, fixed effects and two-step generalized method of moments (GMM) techniques to arrive at results. Findings Results of the study confirm the inverted U-shaped relationship between ownership concentration and firm performance and a significant positive effect of investor protection quality on firm performance. With regard to moderating role of investor protection quality on ownership concentration–performance relationship, results show that investor protection quality would significantly moderate the ownership concentration–performance relationship. Originality/value The study is a pioneer in proving that an inverted U-shaped relationship exists between ownership concentration and firm performance in an emerging market in general and India in particular. This study extends the corporate governance literature by examining ownership concentration–performance relationship in a dynamic perspective and in an unexplored market.

Corporate social responsibility, innovation capability and firm performance: evidence from SME

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Dawit Bahta ◽  
Jiang Yun ◽  
Md Rashidul Islam ◽  
Muhammad Ashfaq
Keyword(s):  
Corporate Social Responsibility ◽  
Firm Performance ◽  
Social Responsibility ◽  
Financial Performance ◽  
Developing Country ◽  
Equation Modeling ◽  
Innovation Capability ◽  
Content Type ◽  
Corporate Social

Purpose The purpose of this paper is to examine corporate social responsibility (CSR) and its effect on small and medium enterprises’ (SMEs) innovation capability and financial performance from the perspective of a developing country. It also aims to explore the role of innovation capability as a mediating factor in the linkage between CSR and SMEs’ financial performance. Design/methodology/approach A questionnaire was distributed among managers/owners of the sampled companies. Using a data set of 402 Eritrean firms and partial least squares structural equation modeling, direct and mediating effects were tested. Findings The result reveals that CSR has a positive and significant effect on the financial performance and innovation capability of SEMs. Besides, innovation capability has a positive and significant effect on the business performance of SMEs. The result also supports a partial mediation effect of innovation capability on the association between CSR and firm performance. Practical implications The findings from this research could enhance the awareness of the entrepreneurs, researchers and policymakers on CSR-SMEs’ relationship and help understand the importance of CSR as a crucial driver mechanism for companies to become more innovative and competitive. Originality/value By empirically examining the relationship between CSR, innovation capability and performance in SMEs, this study contributes to the ongoing scholarly discussion on the linkage between CSR and financial performance. Also, to the best of the authors’ knowledge, no other study investigated the mediating role of innovation capability on the link between CSR activities and firms’ financial performance in SMEs from a developing country perspective, making substantial contributions to research in terms of theory, practice and policy.

scholarly journals The performance of export manufacturing firms: roles of international entrepreneurial capability and international opportunity recognition

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Md Imtiaz Mostafiz ◽  
Murali Sambasivan ◽  
See Kwong Goh
Keyword(s):  
Firm Performance ◽  
Financial Performance ◽  
Structural Equation ◽  
Manufacturing Firms ◽  
Opportunity Recognition ◽  
Entrepreneurial Firms ◽  
Marketing Capability ◽  
Content Type ◽  
Export Manufacturing

PurposeThe international entrepreneurial capability has achieved its legitimacy in international business literature. Leveraging capabilities to recognise opportunities is considered a pivotal strategy to achieve success. Drawing on the entrepreneurship literature and opportunity perspective, this study aims to investigate the role of international entrepreneurial capability in enhancing the international opportunity recognition (IOR) process and the performance of export manufacturing firms.Design/methodology/approachStructural equation modelling has been used to test the hypothesised relationship on 388 export manufacturing entrepreneurial firms operating in the apparel industry of Bangladesh.FindingsThe results signify that three international entrepreneurial capabilities, namely, international networking, learning and marketing capability, positively enhance the IOR process of export manufacturing firms. The IOR process positively mediates the relationships between these international entrepreneurial capabilities and firm performance.Originality/valueMerely having the international entrepreneurial capability is not sufficient to escalate the firm performance. It must be amplified by various strategic actions such as the IOR process. Entrepreneurs need to capitalise on the international entrepreneurial capability to leverage the IOR process and generate non-financial performance success. Entrepreneurial firms that focus more on stimulating non-financial performance can secure better financial performance.

Board gender diversity, board compensation and firm performance. Evidence from Jordan

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Taha Almarayeh
Keyword(s):  
Firm Performance ◽  
Financial Performance ◽  
Least Squares ◽  
Gender Diversity ◽  
Ordinary Least Squares ◽  
Content Type ◽  
Firm Financial Performance ◽  
Board Compensation ◽  
Board Gender Diversity ◽  
The Impact

Purpose This study aims to analyze the relationship between board gender diversity, board compensation and firm financial performance in the developing country, Jordan, whose cultural, economic and institutional context is very different from most previously analyzed countries’ context. Design/methodology/approach Ordinary least squares regression was used to examine the association between board gender diversity, board compensation and firm financial performance in a sample of 510 firm-year observations during the years 2009–2018. Generalized least squares estimation method was used to confirm that the results are robust. Findings The author provides new evidence that board gender diversity does not contribute to firm financial performance. The author also detects that there is a positive relationship between board compensation on firm financial performance. Originality/value This paper examines the under-researched relationship between board gender diversity, board compensation and firm financial performance. In so doing, the author tries to provide new insights into this relationship within the developing context, the case of Jordan that has a different environment from that of advanced markets. To the best of the researcher’s knowledge, this is almost certainly the first research to investigate the impact of board gender diversity and board compensation on firm financial performance in the Jordanian market. This manuscript is expected to be used as a reference by the regulators and policymakers – both in Jordan and other countries with a similar institutional, cultural setting – to provide a deep understanding of the impact of board gender diversity and board compensation on the firm performance.

Disclosure practices and governance quality: evidence from micro finance institutions

2016 ◽  
Vol 12 (3) ◽  
pp. 325-350 ◽  
Author(s):  
Kamran Ahmed ◽  
Rakib Khan
Keyword(s):  
Financial Reporting ◽  
Emerging Market ◽  
Governance Structure ◽  
Ordinary Least Squares ◽  
General Purpose ◽  
Microfinance Institutions ◽  
Content Type ◽  
Large Sample ◽  
Governance Quality

Purpose The purpose of this paper is to assess the role of governance structure and composition and other institution-specific attributes in disclosure practices of microfinance institutions (MFIs) in an emerging market contest. Bangladesh is a country which is considered to be a pioneer in providing micro-finance to the underprivileged people to improve their entrepreneurial capacity. Design/methodology/approach The paper utilises a survey of three groups of users to elicit their opinions and the recommendation of the donor and regulatory agencies to construct a disclosure index. Further ordinary least squares regressions, both parametric and non-parametric, are used to analyse the association between disclosure levels and governance mechanisms and other MFI characteristics. Findings Using a large sample of 564 MFI firm-year reports in Bangladesh, the results show that the overall disclosure levels were around 70 per cent in 2010 and have not improved since 2004. The results also show that the frequency of board meetings, qualifications of MFIs’ board members and MFI size are positively associated with MFIs disclosures. However, board size, board independence, audit firm and other control variables have no such effect on disclosure. This implies that MFIs should focus in board effectiveness rather than its composition. Research limitations/implications Using a general purpose financial reporting framework, the paper examines how effective boards can improve financial reporting standards of MFIs for better monitoring by international donor agencies, regulatory bodies and depositors. Originality/value This is the first substantive study, to the best of the authors’ knowledge, that uses data based on a questionnaire survey and the annual financial statements of a large sample of MFIs from Bangladesh that has been at the forefront of microfinance in emerging countries. Prior studies only used Web-based information, namely, Mix-Market, which ranks country on the basis of its disclosure criteria supplied voluntarily by MFIs, and thus suffer from selection bias. In this study, an attempt has been made to develop an empirical model to explain the role of governance quality in disclosure practices of MFIs.

scholarly journals The role of intangible assets and liabilities in firm performance: empirical evidence

2018 ◽  
Vol 19 (1) ◽  
pp. 42-59 ◽  
Author(s):  
Abdifatah Ahmed Haji ◽  
Nazli Anum Mohd Ghazali
Keyword(s):  
Firm Performance ◽  
Financial Performance ◽  
Intangible Assets ◽  
Policy Implications ◽  
Corporate Financial Performance ◽  
Control Group ◽  
Single Measure ◽  
Content Type ◽  
Research Findings

Purpose The purpose of this paper is primarily to explore the extent of intangible assets and liabilities of large Malaysian companies. The authors also examine whether intangible assets and liabilities of a firm have similar or contrasting roles in firm performance. Design/methodology/approach Using a direct and straightforward measure of intangible assets and liabilities, the authors examine a large pool of data from large Malaysian companies over a six-year period spanning from 2008 to 2013. Findings The longitudinal analyses show a significant number of the sample companies, between 34 and 59.33 percent, have a consistent pattern of intangible liabilities. The authors also find firms with intangible liabilities have significantly underperformed financially than a control group of firms. In addition, the authors find that intangible liabilities have significant negative impact on firm performance whereas intangible assets have a contrasting positive impact on firm performance. Research limitations/implications One limitation of this study is that the authors have only used a single measure of intangible assets and liabilities. Albeit the measures used are straightforward and more objective, there could be other measures to capture intangibles. Practical implications The research findings have several theoretical as well as policy implications. Theoretically, the authors extend the resource-based view to the intangible asset-liability mix, affirming the crucial role of intangible resources in financial performance whilst introducing the unfavorable role of intangible liabilities in corporate financial performance. In terms of policy implications, the research findings provide initial empirical input to emerging calls for broader perspectives of intangibles, beyond intangible assets to include intangible liabilities, and therefore belong to an emerging paradigm toward the nature of intangibles. Originality/value This study documents a rare empirical account of the contrasting roles of intangible assets and liabilities in corporate financial performance.

Knowledge sharing, intellectual capital and firm performance

2014 ◽  
Vol 52 (2) ◽  
pp. 230-258 ◽  
Author(s):  
Zhining Wang ◽  
Nianxin Wang ◽  
Huigang Liang
Keyword(s):  
Firm Performance ◽  
Financial Performance ◽  
Intellectual Capital ◽  
Operational Performance ◽  
Relational Capital ◽  
Research Model ◽  
Content Type ◽  
Technology Firms ◽  
High Technology Firms

Purpose – The aim of this paper is to investigate the impact of knowledge sharing (KS) on firm performance and the mediating role of intellectual capital (IC). Design/methodology/approach – A research model was developed based on prior KS and IC studies. A survey was administered to a sample of high technology firms in China and 228 usable responses were collected. Structural equation modeling (SEM) was employed to test the research model. Findings – Tacit KS significantly was found to contribute to all three components of IC, namely human, structural and relational capital, while explicit KS only has a significant influence on human and structural capital. Human, structural and relational capital, enhance both operational and financial performance of firms. The effect of KS on firm performance is mediated by IC. Explicit KS has a greater effect on financial performance than operational performance, whereas tacit KS has a greater impact on operational performance than financial performance. Research limitations/implications – The sample of high technology firms in China might limit the generalization of the findings. Nonetheless, this study takes its lead from and extends prior research, thus providing a deepened understanding of the role of KS in organizational settings. Practical implications – The paper suggests that managers can enhance firm performance by enhancing their KS and IC. Managers can develop corresponding strategies based on the findings to achieve their specific performance goals. Originality/value – This is one of the first papers to examine how KS contributes to firm performance through the mediation of IC. It will add significant value for organizations trying to enhance their performance though KS practices.

Capital structure, competitive intensity and firm performance: an analysis of Indian pharmaceutical companies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Neeti Mathur ◽  
Satish Chandra Tiwari ◽  
T. Sita Ramaiah ◽  
Himanshu Mathur
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Financial Performance ◽  
Market Competition ◽  
Competitive Intensity ◽  
Content Type ◽  
Relationship Of ◽  
The Relationship ◽  
Moderating Role

PurposeThis research paper aims to explore the relationship of financial performance and capital structure of Indian pharma firms of BSE 500, the impact of research and development (R&D) expenditure on financial performance and also explore the moderating role of competitive intensity between the existing relationship of capital structure and firm performance.Design/methodology/approachThe balanced panel data of listed pharma firms of BSE 500 are used for the research study, and the present study adopts both the panel and ordinary least square (OLS) estimation techniques to draw the results.FindingsThe results exhibit that the high debt ratio is harmful for the accounting performance of the selected sample of pharma firms of BSE 500. Besides, market competition negatively moderates the relationship between capital structure and firm performance.Research limitations/implicationsThe research findings provide evidence for the policymakers/regulators that the sample firms should discourage the high debt financing in the presence of competitive intensity in the product marketplace.Originality/valueThe core contribution of the current research is to examine impact of R&D expenditure on financial performance and the moderating role of market competition on the relationship of capital structure and firm performance to the best of the authors' knowledge, and no single study has previously explored this relationship in the context of BSE 500 pharma firms.

‘Welcome on board’: resource dependency and agency theoretic evidence from the South African life insurance market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdul Latif Alhassan ◽  
Kalwani Zyambo ◽  
Mary-Ann Afua Boakye
Keyword(s):  
Financial Performance ◽  
Life Insurance ◽  
Audit Committee ◽  
Ordinary Least Squares ◽  
Resource Dependency ◽  
Insurance Market ◽  
Board Independence ◽  
Content Type ◽  
Positive Effect

Purpose This paper examines the role of corporate governance on the financial performance of life insurers in South Africa. Specifically, the paper tests two competing hypotheses on the role of boards as effective monitors of opportunistic behaviour of executives, as prescribed by the agency theory or as an effective resource, as advocated by the resource dependency view. Design/methodology/approach The paper estimates both static and dynamic panel data of 68 insurers from 2007 to 2014 using random effects, panel corrected standard error ordinary least squares and generalized method of moment’s estimation techniques. Board size, audit committee size, board independence and audit committee independence are used as the governance indicators while profitability is measured as returns on assets and equity. Findings The findings support both the resource dependency and agency theoretic views of boards. Specifically, the results indicate that large board and audit committees improve financial performance which supports the view of boards as effective resources for insurers. In addition, the role of non-executive directors in addressing agency conflict is reflected in the positive effect of board independence on financial performance. However, the long-run causal positive effect is only reported for audit committee size on return on assets. In addition, the paper also finds evidence of profitability persistence in the life insurance market. Finally, reinsurance usage, insurer size and market concentration were found to have a negative effect on financial performance. Practical implications The findings re-enforce the important role of boards in their oversight responsibilities and as effective resources in the operations of highly specialized insurance businesses. Originality/value As far as the authors are concerned, this empirical analysis documents the first evidence of the linkages between governance mechanisms and financial performance of an insurance market in Africa.

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