Debt Ratio Research Articles

Optimal design of deferred compensation for bank executives under agency conflicts

AbstractWe analyze the optimal design of deferred compensation for bank executives under agency conflicts in a continuous time model with a bank liability structure. Our model demonstrates that a well‐designed deferred compensation contract can effectively mitigate bank executives' asset substitution problem and significantly enhance the total value of the bank, which aligns with existing empirical studies. Moreover, we find that the motivation for bank executives to shift risk under deferred compensation is diminished when supervision is more stringent, the bank has greater market power, or the write‐down ratio of debt is lower.

Analysis Of Liquidity Ratio And Solvability Ratio On The Financial Performance Of Sepakat Sejahtera Syariah Cooperative

Abstract: The population of this research is the Sepakat Sejatela Syariah Cooperative from 2020 to 2022. The data collection method used is the library survey method. The data used in this research was obtained from the Indonesian Stock Exchange website (www.idx.co.id) and the Sepakat Sejahtera Syariah Cooperative website (https: //ntbmall.com) /store/. This data is secondary data in the form of the next report. Koperashi-Syariah-Prosperity Agreement). The data analysis technique used is to analyze data by describing or illustrating the data using liquidity ratios (current ratio, short-term ratio, liquidity ratio) and solvency ratios (debt to asset ratio, debt to asset ratio). Descriptive analysis whose aim is to analyze. Analysis of long-term equity and debt ratios). The results of the analysis are as follows. (1) Liquidity Ratio: Based on the average calculation for 2020-2022, the current ratio is 1224.67%, the quick ratio is 1221.07%, and the current ratio is less than 636.91%. Because this ratio is above the institutional average, it is recommended for institutions to maintain their financial performance and increase profits in the coming year. Businesses must manage the capital invested in assets, increase sales, and reduce operational costs incurred.Keywords: Liquidity, Solvency, Financial Performance

ANALYSIS OF FINANCIAL ECONOMIC INDICATORS FROM A SUSTAINABILITY PERSPECTIVE: STUDY WITH COMPANIES IN THE ENERGY SECTOR LISTED ON B3

Global demand for electricity is growing continuously. Therefore, the analysis of the companies involved becomes timely. This study investigates the impact of the disclosure of sustainability reports, with and without audit opinions, on the economic and financial performance of companies listed on B3 during the period from 2019 to 2023. Methodologically, the research has a descriptive approach, documentary procedure and quantitative nature. Its temporal dimension is longitudinal. The sample, composed of 77 companies selected probabilistically, was divided into: 47 companies that published reports with an audit opinion, 12 that published without an opinion, and 18 that did not publish reports. Through the Kruskal-Wallis test, the results indicated that the companies present similar performances in metrics such as current liquidity, dry liquidity, general liquidity, net margin and asset turnover. However, statistically significant differences were observed in the quick liquidity ratio, debt ratios (level and composition), as well as return on investment (ROI) and return on equity (ROE) indicators. This study contributes to the literature by providing insights into how sustainability reporting can influence various aspects of the financial management of electric power companies.

Key Audit Matters Between Auditors and Auditees in Middle East and North Africa

This study investigates the impact of auditor- and auditee-specific features on key audit matter disclosures in auditors’ reports. It focuses on client factors, including debt, profitability, financial distress, and audit factors, including auditor size, rotation, and opinion. A direct extraction of audit reports from different markets in Middle East and North Africa covering three years from 2020 to 2022 was carried out. A content analysis of the annual reports regarding key audit matters, client-specific characteristics, and auditor characteristics was performed in this research. The results of this study show that key audit matters are not correlated to profitability and financial distress, while the debt ratio is significantly related to the number of key audit matters. The results also indicate that audit rotation and opinion have a significant explanatory effect on key audit matters as the coefficients of both independent variables are positive and statistically significant while the size of the audit firm is not related to the number of key audit matters.

Determinant Factors of Profitability in Fintech Lending Companies in Indonesia from 2019 to 2022 Using Principal Component Analysis (PCA)

This reserach examines factors influencing the profitability of Fintech lending companies in Indonesia. A purposive sampling method was employed to select 45 companies annually. The data for this research are cross-sectional, comprising the years 2019, 2020, 2021, and 2022. The methods in this research are Principal Component Analysis (PCA) and multiple linear regression. Findings reveal that current ratio, cash ratio, working capital turnover, debt to assets ratio, short-term debt ratio, equity multiplier, total assets turnover, fixed assets turnover, tangible assets ratio, and effective tax rate significant determinants of profitability for Fintech lending companies in Indonesia. This reserach can help Fintech lending companies improve their profitability.

DETERMINAN SISI PENAWARAN GREEN BONDS ASEAN

The explicit objective of this study is to analyze the factors influencing the supply side of Green Bonds in ASEAN countries. This research aims to examine how the characteristics of green bonds and the characteristics of issuing companies affect the amount of green bonds issued in ASEAN countries, particularly in Malaysia, Singapore, Thailand, and the Philippines during the period from 2018 to 2021. This study employs a quantitative research design with a linear regression analysis approach using the Ordinary Least Squares (OLS) method. This design was chosen to identify and measure the relationship between the independent variables (green bond characteristics and issuer company characteristics) and the dependent variable (the amount of green bonds issued). The independent variables in this study are Green Bond Characteristics, proxied by coupon rates and risk premiums. Additionally, the study includes the variable Issuer Company Characteristics, proxied by the debt ratio of the issuing company. The dependent variable in this study is the amount of green bonds issued. This research utilizes panel data that encompasses green bonds issued in four ASEAN countries (Malaysia, Singapore, Thailand, and the Philippines) from 2018-2021. This panel data allows for analysis that accounts for variability over time and across different companies or countries. The findings of this study indicate that there is a significant relationship between the characteristics of green bonds and the characteristics of issuing companies with the amount of green bonds issued in ASEAN countries. Specifically, it was found that green bond characteristics such as coupon rates and risk premiums significantly impact the amount of green bonds issued. Higher coupon rates and higher risk premiums tend to reduce the amount of green bonds issued. Additionally, the characteristics of the issuing companies, particularly the debt ratio, were also found to have a significant influence on the amount of green bonds issued. Companies with higher debt ratios tend to issue more green bonds. Overall, this study identifies key factors influencing the supply of green bonds in ASEAN and provides insights that can support the development of policies and strategies to strengthen the green bond market in the region

Balancing Innovation and Profitability: Technological Diversification in Iran’s Insurance Industry

Abstract This study explores how technological diversification affects financial performance in Iran’s insurance industry. Using semi-structured interviews with six experts, including CEOs and faculty members, key indicators of technological diversification were identified, such as new underwriting software and digital advertising platforms. A 33-item questionnaire was developed based on these insights and distributed to top managers of Iranian insurance companies, with secondary financial data sourced from the Central Insurance of Iran. The study employes regression analysis and Partial Least Squares Structural Equation Modeling (PLS-SEM) to assess the impact of technological diversification on financial performance, controlling for firm size, debt ratio, and company age. Findings indicate a significant negative relationship between technological diversification and both Return on Equity (ROE) and Return on Assets (ROA), suggesting that the costs of adopting new technologies may outweigh their short-term financial benefits. Additionally, high debt ratios were found to adversely affect ROA, highlighting the financial risks of excessive borrowing.

Evaluating Financial Performance in the Indian Food Sector: A TOPSIS Approach to Company Assessment

When evaluating financial performance, industry-specific elements that have an influence on the food business are taken into account, including raw material costs, pricing dynamics, the competitive environment, regulatory environment, and consumer trends. When assessing a company's general health and future prospects, it is important to take these elements into account because they have an impact on its financial performance Over the years, India's food business has undergone substantial development and change, driven by factors including shifting customer tastes, urbanisation, and rising disposable income. The industry includes a number of subsectors, including restaurants, processed food, drinks, dairy products, and confectionery. Over the years, India's food business has undergone substantial development and change, driven by factors including shifting customer tastes, urbanisation, and rising disposable income. The industry includes a number of subsectors, including restaurants, processed food, drinks, dairy products, and confectionery. Investment Decisions: Evaluating the financial performance of food sector firms enables investors to make wise investment choices. Risk management: It's crucial to comprehend the financial status of businesses in the food sector. Industry Competitiveness: Analysing financial performance sheds light on the Indian food industry's competitive environment Government agencies and regulatory organisations can use financial performance assessments to develop policies and regulations that support the expansion and sustainability of the food sector. Sector Analysis: Evaluations of financial performance help with a more comprehensive study of the Indian food business. Investment Decisions: Evaluating the financial performance of food sector firms enables investors to make wise investment choices. Risk management: It's crucial to comprehend the financial status of businesses in the food sector. Industry Competitiveness: Analysing financial performance sheds light on the Indian food industry's competitive environment Government agencies and regulatory organisations can use financial performance assessments to develop policies and regulations that support the expansion and sustainability of the food sector. Sector Analysis: Evaluations of financial performance help with a more comprehensive study of the Indian food business. Alternative Parameter taken as Company 1, Company 2, Company 3, Company 4, Company 5, Company 6. Evaluation Parameter Net Profit Margin, Current Ratio, Debt Ratio, Debt to Equity. After doing topsis analysis company 2 has ranked 1 company 2 has ranked 6. TOPSIS method provides a systematic and comprehensive approach for evaluating alternatives based on multiple criteria. It considers both the positive and negative aspects of each alternative and helps decision makers in selecting the most suitable option based on their preferences and objectives.

Analisis Tingkat Kebangkrutan pada PT Patra Trading Jakarta

This research aims to determine the prediction of the bankruptcy level of PT. Patra Trading uses financial report data from 2021 to 2023. The method used in this research is Quantitative Descriptive non-Statistical. This research uses secondary data originating from the company PT Patra Trading in the form of the company's annual financial report. The population used is a subsidiary of PT Pertamina Patra Niaga. The sampling technique used in this research is Purposive Sampling for taking samples from the population based on certain criteria. The benchmarks for this bankruptcy prediction analysis consist of several ratios; (1) working capital to total asset; (2) rentaint to total asset; (3) profit before interest and tax to total assets; (4) book value equity to book value liquiditas; (5) profit before tax on current liabilities; (6) sales to total assets: (7) return of assets; (8) debt ratio; (9) current ratio. The results of the analysis using the Altman Z-Score, Springate, Zmijewski, Grover model on PT Patra Trading, provide different research results, where two of them say that PT Patra Trading is in the healthy category, namely in the Zmijewski model the final figure for this model is below 0 and the Grover model final figure is above 0.001. The Springate model says that PT. Patra Trading is still in the bankruptcy category where the final figure is below the standard, namely 0.862. Finally using the Altman Z Score model at PT. Patra Trading is in the gray area.

Capital Structure and Enterprise Market Value: An Empirical Analysis Based on S&P 500 Companies

Abstract: This study explores the impact of capital structure on enterprise market value, specifically examining the influence of the debt ratio on the market valuation of S&P 500 companies. Capital structure decisions are crucial for corporate managers and investors, as they significantly affect firm performance, risk, and market perception. The research is motivated by the need to understand how financial leverage influences market valuation, particularly in large, publicly traded companies. Utilizing two-way fixed effect panel data models spanning from 2020 to 2023, we find significant evidence that higher leverage is associated with an increase in market valuation, offering a comprehensive view of the factors that influence corporate market values. Additionally, the study reveals that the impact of leverage varies across company sizes and examines sector-specific effects and the role of long-term debt. The findings provide key insights for investors and corporate managers regarding the impact of financial structure on company valuation, emphasizing the importance of optimizing capital structure to enhance firm value and strategic decision-making.

Bank-specific and Macroeconomic Determinants of Commercial Banks Profitability in Kenya

This study focuses and examines the impact of bank-specific factors and macroeconomic determinants on the financial performance of commercial banks listed on the Nairobi Securities Exchange (NSE) during the period spanning from 2011 to 2020. The research is anchored on transaction cost economic theory with financial panel data methodology. In the pursuit of study objective, the study employed pooled ordinary least squares (OLS) estimation method combined with fixed effect model to account for individual-specific characteristics that may not be directly observable but are likely to impact the dependent variable. The research findings reveal that bank assets, bank capital and debt ratio have a positive impact on bank profitability while bank concentration has a negative effect. Notably, inflation rate, lending rate and tax rate were insignificant in relation to rate of return on equity among the selected banks in NSE. The study recommends that banks should prioritize efficient capital allocation and diversify their business lines and offerings. Therefore, banks should give thought to the implementation of strategic asset management as a means to optimize their asset allocation, as it can contribute to increased profitability through diversification and efficient asset utilization.

Financial and sporting efficiency and productivity in Brazilian football clubs

PurposeThis paper analyses the efficiency and productivity of Brazilian football clubs in the post-world cup 2014 period (2014–2022) using a network dynamic DEA-Malmquist model.Design/methodology/approachFinancial and sporting efficiency and productivity in Brazilian football clubs.FindingsThe financial division’s average efficiency is higher than that of the sporting division and overall efficiency from 2014 to 2022. Fourteen clubs exhibited increased productivity during this period. Regression models revealed a statistically significant positive relationship between the debt ratio and DEA dependent variable models at a 1% significance level and a significant negative relationship with the three Malmquist dependent variable models. Additionally, the models identified a statistically significant relationship with the “Covid” (2020 years) variable across all models.Practical implicationsOur findings suggest that increased expenditures can lead to higher liabilities, reducing the ability to afford high-quality players and thus diminishing overall club value. Additionally, the inefficiencies observed among some of the largest football clubs reveal room for improvement in both financial and sportive aspects.Originality/valueThis is the first study to investigate efficiency and productivity in two dimensions for Brazilian football clubs, incorporating an analysis of productivity over an extended period and examining the impact of debt and other determinants on club performance.

Ownership structure and capital structure dynamics in South African firms

Background: The ownership structure can impact capital structure decisions as owners are an influential group that govern the financial decisions of firms. Hence, the ownership structure and the categories of its owners have important implications for the capital structure of firms.Aim: This study investigates the linear and non-linear effects of different ownership types (managerial, foreign, institutional, government, and family) on the debt ratios of firms.Setting: This study includes 267 non-financial firms listed on the Johannesburg Stock Exchange (JSE) from 2004 to 2021, accounting for fluctuation in listings during this period.Method: The fixed effects model is used to estimate the impact of ownership structure on capital structure, while the Sasabuchi-Lind-Mehlum test evaluates non-linearity. Additionally, the Durbin-Wu-Hausman test is employed to detect whether endogeneity is present in this study.Results: The findings indicate that government ownership has a positive linear relation with the total debt and long-term debt ratio, while a non-linear inverse U-shaped relationship is found between institutional ownership and long-term debt, with an optimal level of 34.3%.Conclusion: The study concludes that the ownership structure is an important factor driving capital structure decisions, with government and institutional ownership directly impacting the debt ratios of firms.Contribution: This article expands the limited knowledge of the impact of ownership structure on capital structure and is the first to explore non-linear effects in the South African context. The findings offer valuable insights for boards and management that may aid them in strategically configuring ownership structures that optimise their capital structures.

Factors Affecting the Sustainability of Corporates in Polluting Sectors

Corporate sustainability performance is gaining ever greater importance. The negative impact of climate change is manifested through heavy air, water and soil pollution. Polluting sectors, as the major players, are characterized by large amounts of emissions, waste and consumption of resources, and therefore have a larger negative impact on the environment. Companies operating in polluting sectors are recognized globally as the main sources of greenhouse gas emissions; thus, their performance is widely debated. Despite their character, such companies strive for higher profitability, better financial performance and operational efficiency. However, higher financial resources create the potential for innovation investments in companies. It is widely accepted that research and experimental development (R&D) expenditures enable new business ideas, models, products, services, and processes. However, while pursuing sustainability targets, financial results could be directed towards sustainability performance. The purpose of this paper is to analyze how the financial and innovation results of companies in polluting sectors interact with sustainability performance scores. For it, we have identified three essential pillars of sustainability: environmental, governance, and social. Using ordinary least squares (OLS) regressions, models were developed for each pillar of sustainability, including corporate financial performance indicators and R&D expenditures. The obtained results provide the insights that a company operating in polluting sector size and turnover significantly interacts with all pillars of sustainability. However, we also found that the corporate debt ratio, earnings ratio, and current liquidity have a significant relation only with environmental and social sustainability indicators.

The Effect of Third Party Funds, CFO, Debt Ratio on Earning Quality of Islamic Commercial Bank

This study aims to analyze the factors that affect Earnings Quality. This research will offer a new and broader view on the factors that influence the profit quality of Islamic commercial banks in Indonesia. This research use quantitative study that uses multiple regression analysis methods. The data used is panel data from 2019-2022. The factors analyzed for their influence in this study are Third Party Funds, CFO, and DER. The model estimation used is multiple regression analysis with a quantitative descriptive method. The results of the study show that the CFO and DER have an impact on earnings quality, while, third third-party Funds do not affect Earnings Quality. These findings indicates that banks need to pay more attention to managing operating cash flow (CFO) and capital structure (DER) to improve earnings quality. Proper management of these two variables can help banks achieve more stable and transparent financial performance. Although Third Party Funds do not significantly affect earnings quality, their management is still important to maintain the stability of the bank’s liquidity. These results also suggest that investors and other stakeholders may need to focus on CFO and DER as key indicators when assessing a bank’s earnings quality.

How does informed trading affect credit bond spreads: Evidence from China's interbank bond market

China's interbank bond market is an institutional investor market, and transactions are more information-based. Whether and how informed trading can affect credit bond pricing is an urgent problem to be solved in the study of China's bond asset pricing. This paper uses credit bond issuance and trading data and stock high-frequency trading data from May 2014 to December 2020 to construct informed trading probability and bond liquidity indicators. Using regression analysis and adjustment and mediation effect test methods, this paper studies the impact of informed trading on China's interbank credit bond pricing and the channel role of liquidity. The results show that the probability of informed trading has a significant positive impact on credit bond spreads. Informed trading leads to an increase in credit bond spreads by amplifying bond illiquidity. The amplifying effect of informed trading on credit bond spreads is stronger for bonds with high illiquidity. The amplifying effect of informed trading on credit bond spreads will be stronger in private enterprises, enterprises with low information transparency, and high debt ratios. This study reveals the risk nature of informed trading in China's interbank bond market, which helps to deepen the understanding and management of the bond market.

IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF VIETNAMESE INSURANCE COMPANIES

Insurance companies have an important function of absorbing and storing economic risks. Therefore, companies need to have optimal, safe, and stable capital sources to be able to finance, diversify, and transfer risks. Previous studies have only focused on market share, customers, competitive strategies, and insurance premiums without paying attention to the capital sources of insurance companies. This is more necessary when Vietnamese insurance companies have a non-optimal capital structure, leading to low profitability. The study aims to fill the above gap by analyzing the impact of capital structure on the profitability of insurance companies through the research sample of the Data Set of 40 insurance companies (listed on HNX, HOSE, UPCOM), corresponding to 297 observations in the period from 2013 - 2023. By using GMM estimation, the author has identified three independent variables explaining (and two control variables) the variation of the dependent variable profitability (ROE), including (i) General debt ratio (GDR), (ii) Debt ratio (DR), (iii) Long-term debt ratio (LDR). Based on the research results, the authors discuss and assess the important role of capital structure in insurance companies and provide financial solution recommendations to improve their profitability.

Mendeteksi Kecurangan Laporan Keuangan Dengan Menggunakan Analisis Rasio Keuangan

The aim of this research is to test financial ratios as a tool for detecting fraudulent financial statements. This research uses the monitoring premise of agency theory to explain the association between financial ratios and financial statement fraud. Proxies for measuring financial ratios include four financial ratios, namely debt ratio, profitability, cash flow and accruals. Financial reporting fraud uses an occurrence-based proxy, namely a dummy for regulatory violations in sample companies. The samples tested were manufacturing companies registered on the IDX during 2016-2018. The results of this research show that empirically financial ratios are not yet fully capable of being used to detect fraudulent financial statements.

Money/Asset Ratio as a Predictor of Inflation

This paper modifies the quantity theory of money to forecast inflation, relating the latter to scale variables such as monetary aggregate M2 and government bonds that measure the money demand for asset transactions. The out-of-sample forecast results show that at least since the early 1990s, the money/asset model that uses the money supply/government debt ratio as a predictor has been significantly improved upon univariate and multivariate models, such as Phillips curve and term spread models, for forecasting U.S. inflation over one- to three-year horizons. In using real-time vintage data, I find that, since 2000Q1, the forecasts derived from the money/asset model have slightly improved upon those from the Greenbook in forecasting quarter-over-quarter CPI inflation at short horizons, from two- to four-quarter. These results imply that the Federal Reserve can use the money supply/government debt ratio to forecast and control the inflation rates, coordinating monetary policy with fiscal policy. Moreover, the money supply/government debt ratio can partly explain the U.S. inflation dynamics from the early 1960s until COVID-19.

Debt and debt tax benefit: Evidence from Indonesia debt-to-equity cap reform

This study scrutinizes the effects of Indonesia’s 2016 debt-to-equity cap reform (thin capitalization rule) on capital structure, highlighting the role of debt tax benefits. The reform curtails debt tax benefits and furnishes a quasi-experimental setting, allowing a comparison between firms affected by the reform and those unaffected. Focusing on private firms and employing an entropy balancing weighted difference-in-difference approach, we elucidate that the reform results in a substantial 9.7 percentage point reduction in the debt ratio and a 5.3 percentage point increase in the stock ratio. Additionally, utilizing a pseudo tax cut reform framework combined with an isolated impact of the zero marginal debt tax benefit, we identify an implied tax elasticity of debt around 0.88, contributing to the observed decline in the debt ratio. Notably, smaller firms exhibit a more pronounced response, and the stock ratio undergoes a significant metamorphosis, suggesting the need for nuanced policy adjustments. Overall, the study underscores the profound influence of debt tax benefits in shaping corporate financing decisions.