Abstract
The purpose of this paper is to examine the determinants of financial performance, firm liquidity and financial leverage of Indian listed firms. This study uses both static models (pooled, fixed, and random effects) and Generalized Moment Methods (GMM). Financial leverage (FINLE) is defined by the ratio of total liabilities to total assets, whereas the current ratio and the quick ratio are used as firm liquidity factors. Further, a set of financial performance determinants such as return on assets, profit after tax, return on capital employed, return on equity, and Tobin-Q are used as independent factors. The results indicated that profit after tax, return on equity, return on capital employed, and Tobin-Q are the most significant financial success variables that influence financial leverage of Indian listed companies. Furthermore, profit after tax, return on capital invested, return on equity, and Tobin-Q are considered to have a substantial effect on financial leverage among the financial success indicators. In the case of firm liquidity, the findings show that the current ratio and the quick ratio have a substantial effect on the financial leverage of Indian listed companies.
Highlights
The financial judgment made by management is very critical in deciding the optimum capital structure
A set of financial performance determinants such as return on assets, profit after tax, return on capital employed, return on equity, and Tobin’s Q (Tobin-Q) are used as independent factors
The results indicated that profit after tax, return on equity, return on capital employed, and Tobin-Q are the most significant financial success variables that influence financial leverage of Indian listed companies
Summary
The financial judgment made by management is very critical in deciding the optimum capital structure. Return on assets (ROA) is a percentage research have discovered a positive correlation beof gross assets that can be measured by net profit tween company size and leverage (“Deesomsak et as the first indicator for the calculation of financial al., 2004; Rajan & Zingales, 1995”). This is assoresults of previous research using different met- ciated with the trade theory (TOT), where larger rics to calculate financial performance. “Return on equity, earnings per share, long-term debt-tototal-assets ratio, total debt-to-total-assets ratio, return on asset, sales growth, short-term debt-to-total-assets ratio, firm size, liquidity, and tangibility”. “Return on assets, asset size, earnings per share, corporate social responsibility, financial leverage, profit after tax, inflation rate, return on equity, and age of Islamic banks”
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