Effect of Financial Leverage on Firm's Market Value Creation in Bangladesh

2017 ◽  
Vol 4 (2) ◽  
pp. 41-58
Author(s):  
Syed Md. Khaled Rahman
Keyword(s):  
Value Creation ◽  
Tobin’S Q ◽  
Financial Leverage ◽  
Tobin's Q ◽  
Book Value ◽  
Explanatory Variables ◽  
Basic Objective ◽  
Equity Ratio ◽  
The Impact ◽  
Domestic Companies

This article contends that a firm's performance is affected by various factors and capital structure is one of the factors among them. The basic objective of the research is to analyze and compare the impact of financial leverage on firms' Market to Book Value (MV/BV) and Tobin's Q ratio of DSE-listed MNCs & domestic firms of Bangladesh over a 20-year period (1996-2015). Explained variables are Market to Book Value (MV/BV) and Tobin's Q ratio. Explanatory variables of the interest are indicators of six financial leverage ratios. MV/BV is negatively related with leverage ratios of both types of companies. Domestic companies' MV/BV decreases by 0.016 times for 1% increase of debt ratio while MNCs' MV/BV decreases by 0.048 times for 1% increase of debt-equity ratio and vice-versa. With debt-equity ratio, domestic companies' Tobin's Q is positively related while that of MNCs is negatively related.

scholarly journals Corporate Governance and Company Value: A Manufacturing Industry Case Study

2021 ◽  
Vol 4 (4) ◽  
pp. 450-461
Author(s):  
Helma Malini ◽  
Dyen Natalia ◽  
Giriati Giriati
Keyword(s):  
Corporate Governance ◽  
Panel Data ◽  
Audit Committee ◽  
Manufacturing Industry ◽  
Random Effect ◽  
Random Effect Model ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Book Value ◽  
The Impact

The purpose of this research is to look into the impact of corporate governance in the Indonesia Stock Exchange's Manufacturing Industry. Panel data from 73 Manufacturing Industry companies on the Indonesia Stock Exchange from 2014 to 2018 with a total of 365 observations of data whose research results were analyzed using panel data regression analysis with the Random Effect Model approach. Institutional ownership has a positive effect on Tobin's q and market book value, according to the study's findings. Tobin's q and market book value are negatively affected by foreign ownership. Meetings of the Board of Commissioners and the Audit Committee have a negative impact on stock price returns. Meetings of the board of directors, audit committee, and board of commissioners were found to have no impact on the value of the company. On the basis of these findings, it can be concluded that the results of testing the independent variables on the dependent are inconclusive and should be questioned further.

THE IMPACT OF CAPITAL STRUCTURE AND OWNERSHIP ON THE PERFORMANCE OF STATE ENTERPRISES AFTER EQUITIZATION: EVIDENCE FROM VIETNAM

2021 ◽  
pp. 2150007
Author(s):  
NGUYEN DUY SUU ◽  
HO THUY TIEN ◽  
WING-KEUNG WONG
Keyword(s):  
Capital Structure ◽  
Negative Impact ◽  
Positive Impact ◽  
State Ownership ◽  
Stock Exchanges ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Equity Ratio ◽  
Capital Ownership ◽  
The Impact

The main objective of this paper is to study the impact of capital structure and capital ownership form of SOEs after equitization. We have considered all 137 state-owned companies after equitization for which data can be collected during the period from 2007 to 2017. These encompass companies in different industries listed on the HOSE (Ho Chi Minh City) and HNX (Hanoi) stock exchanges. To this end, we have applied REM and FEM models and corrected for variance with the GLS and FEM models. Our findings reveal that the variable leverage (LEV) has a negative impact on ROA, but, interestingly, has a positive impact on ROE and Tobin’s Q. Growth rate (GROWTH) have a positive effect on both ROA and Tobin’s Q. State ownership (SO) has only positive impact on ROA. Meanwhile, the company size variable (SIZE) has a positive impact on Tobin’s Q. In addition, in relation to our examination of how the domestic and foreign resources might impact on the profitability ratio, we have observed that the domestic equity ratio has a positive impact on both ROA and ROE whereas the foreign ownership ratio has a negative impact on both ROA and ROE.

scholarly journals Effects of Infrastructure Development, Inflation and Economic Growth to Performance Company (ROA, Tobin's Q, PBV): Study on Registered Infrastructure Support Companies in IDX Period 2014-2019

2021 ◽  
Vol 4 (3) ◽  
Author(s):  
Eko Sarjono ◽  
◽  
Kartika Hendra Titisari ◽  
Supawi Pawenang
Keyword(s):  
Economic Growth ◽  
Performance Measurement ◽  
Financial Performance ◽  
Stock Exchange ◽  
Hypothesis Test ◽  
Linear Regression Analysis ◽  
Infrastructure Development ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
The Impact

The financial performance can be used as a benchmark of the ability of an organization or company in achieving its goals. Performance measurement is one of the most important factors for an organization or company, performance measurement is a process of measuring the extent to which a company does work to achieve its goals. The research investigated the impact of infrastructure, economic growth and inflation on financial performance of infrastructure support companies listed in Indonesian Stock Exchange Period 2014-2019 which is proxied by ROA (Return on Assets), Tobin’s Q and PBV (Price to Book Value). The population of this research was the infrastructure support companies listed on the Indonesian Stock Exchange period 2014-2019. Research sampling was conducted using The Purposive Sampling Method. The data analysis was camed out using classical assumption test, multiple linear regression analysis, t-test, F-test and determinan (R2) test with SPSS 21. The research finding showed that the model has an effect on the financial performance as proxied by ROA. So the results of the hypothesis test show that: (1) Infrastructure development has a negative and significant effect on ROA. (2) The inflation rate has a positive and significant effect on ROA. (3) Economic growth has no significant effect on ROA. Meanwhile, the model has no effect on financial performance which is proxied in Tobin's Q and PBV.

scholarly journals CURRENCY DEPRECIATION AND CORPORATE NET WORTH OF LISTED COMPANIES IN INDONESIA

2008 ◽  
Vol 7 (2) ◽  
Author(s):  
A. Prasetyantoko
Keyword(s):  
Panel Data Analysis ◽  
Balance Sheet ◽  
Listed Companies ◽  
Net Worth ◽  
Currency Depreciation ◽  
Tradable Sector ◽  
Equity Ratio ◽  
One Year ◽  
The Impact ◽  
Domestic Companies

This paper is concerned with the impact of currency depreciation during the period of crisis on the corporate net worth of listed companies in Indonesia. The findings can shed light on the corporate “balance sheet effect” of currency crisis. This paper finds that firms with a higher debt-equity ratio have a lower value in market capitalization growth, sales and asset during crisis and in postperiod of crisis. Meanwhile, firms with majority foreign ownership (F) have higher sales during crisis and in one year after crisis than domestic companies (L). Furthermore, firms in tradable sector (T) have higher sales and less debt-equity ratio during crisis and one year after crisis than those in Non-tradable sector (N). This research uses data from Indonesian Stock Exchange’s (IDX) database and ECFFN covering the period of 1994-2004. This empirical research using panel data analysis includes 238 listed companies with at least 5 consecutive years.

Property development activities: value creation or distraction for REITs?

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Woei Chyuan Wong ◽  
Joseph T.L. Ooi
Keyword(s):  
Value Creation ◽  
Global Financial Crisis ◽  
Univariate Analysis ◽  
Tobin’S Q ◽  
Property Market ◽  
Property Development ◽  
Development Activity ◽  
Tobin's Q ◽  
Content Type ◽  
Run Up

PurposeThis paper examines the evolution and impact of property development activities on REIT performance. The paper provides insights on whether REITs should venture into property development in addition to their core-business of holding income producing properties.Design/methodology/approachThis paper charts and highlights the evolution of development activities of US REITs from 1992 to 2020. The Tobin's Q of property developing REITs and non-property developing REITs are compared using univariate analysis.FindingsDevelopment activities of US REITs grew dramatically during the run up to global financial crisis (GFC) in 2008. The level of development activities has dropped since the GFC and it has not return to its pre-crisis peak. In comparison, development activities of listed property investment companies and homebuilders are less volatile over the same period. The data reveals that property developing REITs enjoy significantly higher Tobin's Q as compared to their non-developing counterparts.Practical implicationsOur graphical evidence from a market without development restriction suggests that development restriction in other REIT regimes has it value in limit REITs' excessive risk-taking tendency during a booming property market. The positive relationship between Tobin's Q and the existence of property development activity support the value creation of this business activity to REITs.Originality/valueThis paper raises overbuilding as a potential cause of the underperformance of the REIT sector during the GFC.

scholarly journals The Effect of Financial Leverage on The Islamic Banks’s Performance in The Gulf Cooperation Council (GCC) Countries

2019 ◽  
Vol 11 (1) ◽  
pp. 13
Author(s):  
Abdesslam Menacer ◽  
Abdulazeez Y. H. Saif-Alyousfi ◽  
Nor Hayati Ahmad
Keyword(s):  
Agency Cost ◽  
The Other ◽  
Islamic Banks ◽  
Financial Leverage ◽  
Gcc Countries ◽  
Thomson Reuters ◽  
Effect Regression ◽  
Equity Ratio ◽  
Earning Power ◽  
The Impact

This study examines the impact of the financial leverage on the Islamic banks’ performance in the GCC countries during the period from 2005-2017. The population of this study included the Islamic banks in the GCC countries. Thirteen years data of 25 listed Islamic banks in the GCC countries were used, wereby these data were retrieved from the Thomson Reuters DataStream. This study utilized the fixed effect regression model. The findings show that the financial leverage a has significant impact on the performance of the Islamic banks’ performance in the GCC region. More specifically, the financial leverage has a positive and significant impact on ROA, ROE, and Tobin’s Q of the Islamic banks in the GCC countries, thus indicating that the higher is the financial leverage the higher is the performance of the Islamic banks in the GCC region. However, the results of this study do not provide evidence to support the Agency Cost Theory that implies a decrease in the performance when equity ratio is increased. On the other hand, the findings provide evidence to support the Signaling Theory that argues that banks are expected to have a better performance credibly in transmitting this information through the higher capital. The findings imply that the level of financial leverage committed by the Islamic banks depends on their flexibility in adjusting their debt value and earning power.

Impact of CEO Overconfidence on Firm Performance: An Evidence from S&P BSE 200

2019 ◽  
Vol 23 (3) ◽  
pp. 234-243
Author(s):  
Hardeep Singh Mundi ◽  
Parmjit Kaur
Keyword(s):  
Firm Performance ◽  
Superior Performance ◽  
Annual Reports ◽  
Tobin’S Q ◽  
Return On Assets ◽  
Tobin's Q ◽  
Full Sample ◽  
Forecasting Error ◽  
Research Article ◽  
The Impact

The current research article considers the impact of CEO overconfidence on firm performance for S&P BSE 200 firms. The CEO overconfidence is measured using revealed beliefs (holder 67, long holder and net buyer), press coverage and forecasting error proxies of CEO overconfidence. CEO Overconfidence measures are constructed as per the methodology of Malmendier and Tate (2005b, 2008). Firm performance is measured using Tobin’s Q and return on assets. The data are collected from the Centre for Monitoring Indian Economy (CMIE) prowess, S&P Capital IQ and the annual reports of the sample firms over a period of 15 years starting from 1 April 2000 to 31 March 2015. Regression results for each of the proxy of CEO overconfidence with the proxies of firm performance indicate that large Indian firms with overconfident CEOs enjoy a higher return on assets and Tobin’s Q as compared to the full sample firms. Overconfident CEOs consider themselves better-than-average, are involved with over-investment and show superior performance for the firm. The overconfident CEOs increase firm performance by following optimal levels of investments in the firm.

Corporate governance mechanisms and corporate performance of firms in Nigeria and Ghana

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Martha Coleman ◽  
Mengyun Wu
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Financial Distress ◽  
Corporate Performance ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Content Type ◽  
Structure Index ◽  
The Impact ◽  
The Relationship

PurposeThis study investigates the impact of corporate governance (CG) mechanisms with inclusion of compliance and diligence index on corporate performance (CP) of firms in Nigeria and Ghana. It further examines the moderating effect of financial distress on the relationship between CG and CP.Design/methodology/approachThe study used panel data of 102 nonfinancial listed firms of Nigeria and Ghana stock exchange for the period 2012–2016 with total observation of 510. The study first used OLS in estimating the influence of CG mechanisms on CP. Due to multicollinearity in the independent variables, ridge regression was employed.FindingsIt was revealed that ownership structure index and board compliance and diligence index, board size, board disclosure, ownership structure, shareholders' right and board compliance and diligence index had positive influence on ROA and ROE. Growth of Tobin's Q depends on board procedure and board compliance and diligence index. Also, financial distress (ZFS) negatively moderates the relationship between board structure index, board disclosure index, board procedure index, shareholders' right and performance (ROA and ROE) but negatively moderates between ownership structure index and Tobin's Q.Practical implicationsThis study provides interesting findings to policymakers in full implementation of CG codes as stated by OCED (2015) by West African firms with greater emphasis on compliance and diligence index since it positively influences all CP measures.Originality/valueThe study provides evidence of the importance of the introduction of the new index: compliance and diligence, which looks at disclosure of CSR activities. This has been overlooked by most researchers especially in Africa in assessing quality CG mechanisms.

scholarly journals The relationship of capital structure decisions with firm performance: A study of the engineering sector of Pakistan

2012 ◽  
Vol 2 (1) ◽  
pp. 245 ◽  
Author(s):  
Abdul Ghafoor Khan
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Negative Relationship ◽  
Engineering Industry ◽  
Tobin’S Q ◽  
Financial Leverage ◽  
Short Term ◽  
Tobin's Q ◽  
Relationship Of ◽  
The Relationship

Purpose: The purpose of this study is to find the relationship of capital structure decision with the performance of the firms in the developing market economies like Pakistan.Methodology: Pooled Ordinary Least Square regression was applied to 36 engineering sector firms in Pakistani market listed on the Karachi Stock Exchange (KSE) during the period 2003-2009.Findings: The results show that financial leverage measured by short term debt to total assets (STDTA) and total debt to total assets (TDTA) has a significantly negative relationship with the firm performance measured by Return on Assets (ROA), Gross Profit Margin (GM) and Tobin’s Q. The relationship between financial leverage and firm performance measured by the return on equity (ROE) is negative but insignificant. Asset size has an insignificant relationship with the firm performance measured by ROA and GM but negative and significant relationship exists with Tobin’s Q. Firms in the engineering sector of Pakistan are largely dependent on short term debt but debts are attached with strong covenants which affect the performance of the firm.Originality/Value: This is first paper to study an individual sector like engineering industry in Pakistan on the mentioned topic.

Debt Financing and Corporate Finance Performance: A Dynamic Investigation from Nigeria Quoted Firms

2019 ◽  
Vol 1 (1) ◽  
pp. 48-59
Author(s):  
Uzokwe Grace Onyinyechi
Keyword(s):  
Capital Structure ◽  
Coefficient Of Determination ◽  
Positive Sign ◽  
Financial Leverage ◽  
Return On Assets ◽  
Return On Equity ◽  
Explanatory Variables ◽  
Food And Beverage ◽  
Equity Ratio ◽  
State Of Affairs

There are two components of corporate capital. This paper examined the effect of debt financing on the financial performance of quoted firms in Nigeria stock exchange using time series data from 2000-2017. The objective was to examine the controversial findings of scholars on the effect of capital structure on corporate performance of firms.  Return on assets and return on equity was modeled as the function of debt equity ratio, debt ratio, equity ratio, total liability ratio and long term debt ratio. Multiple regressions with the aid of statistical package for social sciences were used as data analysis techniques. Model one found that a correlation coefficient (r) of .872 this implies that a very strong correlation exists between return on assets and explanatory variables. The coefficient of determination (r²) is .678 which shows that 67.8% of the variation in Return on Assets is attributable to the variations in the financial leverage. Also, the F- value calculated of 8.338 has a correlation corresponding value of .004 which implies a good model utility. The test of significance conducted as shown in the tables above states that ROA has a calculated value of 242.032 and a corresponding significance value/probability value of .014.   The positive sign of t-value (1.653) shows the direction of the variables. This therefore implies that when a financial leverage is well used, this leads to a better, reliable and fairer financial result that is objective and represent the true state of affairs in the food and beverage companies proportionately. Model two found that a correlation coefficient (r) of .772 this implies that a very strong correlation exists between return on assets and explanatory variables. The coefficient of determination (r²) is .639 which shows that 63.9% of the variation in return on equity   is attributable to the variations in the financial leverage. Also, the F- value calculated of 7.644 has a correlation corresponding value of .004 which implies a good model utility. The test of significance conducted as shown in the tables above states that ROE has a calculated value of 568.906 and a corresponding significance value/probability value of .003.  The positive sign of t-value (3.310) shows the direction of the variables. This therefore implies that when a financial leverage is well used, this leads to a better, reliable and fairer financial result that is objective and represent the true state of affairs in the food and beverage companies proportionately. We recommend that management of the firms should work very hard to optimize the capital structure in order to increase the returns on equity and assets and that Management of Nigerian firms should increase their commitments into capital structure in order to improve earnings from their business transaction.

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