Financial Performance Of Non-financial Firms Research Articles

Nexus between boardroom independence and firm financial performance: evidence from South Asian emerging market

This study empirically investigates the linkage between boardroom independence and the financial performance of non-financial firms in an emerging market featured by family-controlled businesses and concentrated ownership. The relationship is tested in a sample of 152 non-financial firms listed on the Pakistan Stock Exchange over a period from 2003 to 2018. Firms’ financial performance is measured through return on assets (ROA), return on equity (ROE), market-to-book ratio (MBR), and Tobin’s Q (TQ), while boardroom independence is measured through the proportion of non-executive directors on the corporate board. Using the dynamic GMM approach to address the possibility of endogeneity, it was found that boardroom independence is significantly negatively related to the financial performance of the sample firms. This negative impact is due to the reason of close ties of outside independent directors (non-executive directors) with dominant shareholders and management in personal, financial, and social terms. A significant negative influence of the board size and CEO duality on firms’ financial performance was also observed. The present study will add to the existing literature on corporate governance and firm financial performance using firm-level manually collected data. Further, our findings will also help the policymakers by providing empirical insights for strengthening corporate governance mechanisms in emerging market economies, specifically in the context of Pakistan.

ACCOUNT RECEIVABLE AND INVENTORY CONVERSION MANAGEMENT AS DETERMINANTS OF CORPORATE FINANCIAL PERFORMANCE: EVIDENCE FROM PUBLICLY QUOTED NIGERIAN FIRMS

In this study, we examined whether account receivable and inventory conversion management (ICM) serve as a determinant of corporate financial performance. Ex-post facto design was used and sample of seventy-six (76) firms across various non-financial firm’s sectors were employed. Panel data were obtained from 2011-2019; data obtained were analyzed via descriptive (mean, median, standard deviation, minimum and maximum values, kurtosis, skewness and correlation matrix), diagnostic statistics (variance inflation factor, and unit root) and inferential (fixed and random effects model and Hausman specification) statistical tool. Findings of fixed and random effect panel regression revealed that account receivable management (ARM) significantly affects return on asset (Wald Ch2 = 24.63; prob. Chi2 = 0.000 < 0.05) while relationship between inventory conversion management (ICM) significantly affects return on asset (Wald Ch2 = 9.55; prob. Chi2 = 0.0085 < 0.05). Based on the findings, it was recommended that management should enhance accounts receivable and ICM practices as it is vital to enhancing financial performance of non-financial firms. Also, management should initiate appropriate steps to maintain the level of purchasing and sales management in order to reduce losses due to poor inventory controls and to optimize efficient utilization of resource for production. This study contributes to knowledge by filling the gap in literature on the effect of account receivable, ICM and corporate financial performance in Nigeria.
 Keywords: Account receivables, Inventory management; Inventory conversion management;
 Corporate performance; Cost of capital; Return on asset; Nigerian firms
 JEL Classification: G31; M11; M10

Does trade credit spur performance of the firm: a case study of non-financial firms in Pakistan

PurposeThe purpose of this study is to investigate empirically the trade credit financing as antecedents to firm performance in Pakistan, a transition economy having high level of openness in environment using sample data from firms following Sharia principles using Sharia compliance principles.Design/methodology/approachThis study investigated the significance of the trade credit behavior in influencing financial performance of nonfinancial firms which have adopted Sharia principles in their business activities by incorporating feasible generalized least square estimator technique on panel data model from 2010 to 2020. The variables data was extracted from the Pakistan Securities Exchange website for the period 2010–2020. Meanwhile, this study has also taken into consideration the role of bank size in shaping the relation under consideration.FindingsThe statistical outcomes from the used model support the strong impact of the existence of trade credit in determining a firm’s financial performance. Results also highlight that profitable firms with high involvement in trade credit can boost their performance by optimal utilization of trade credit sources. However, the acquisition of bank loans for firms having no operational needs can disturb their financial health and ultimately threaten performance. This relationship is more evident for large-size firms.Practical implicationsThe given analysis suggests the managers from the corporate sector that before making any arrangements for trade credit, they must have to compare the availability of the financing structure from bank as it offers a strong monetary back for any financial imbalance.Originality/valueBriefly, to the best of the authors’ knowledge, this study would be the first to address the trade credit behavior keeping in view the sample data from firms following Islamic Shariah principles using SAC quantitative approach. Further, the proven analysis demonstrates novel contribution that efficient use of trade credit (based on Islamic Shariah principles) into business activities might strengthen corporate firms’ financial efficiency.

Effect of Board Characteristics on Financial Performance of Non-financial Firms Listed at the Nairobi Securities Exchange

The incongruence between corporate governance and financial performance has resulted in the collapse, liquidation, and diminished profitability of several corporations in Kenya. Instructively, companies have been delisted from the Kenyan bourse as a result of irregularities and failures that curtail their profitability. Specifically, audits have pointed to failures in corporate governance, which highlight the lethargy of directors in addressing agency theory conflicts. In this regard, there is a need for evaluating the impact of board characteristics on corporations listed at the Nairobi Securities Exchange (NSE). Board characteristics such as size, independence, and diversity have a significant influence on a firm’s strategic direction. Globally, numerous studies have investigated the relationship between corporate governance and financial performance. However, there is limited scholarly research to ascertain the role of individual board characteristics on listed firms’ financial performance. Thus, this study’s main objective was to determine the effect of board characteristics on the financial performance of non-financial firms listed at the NSE. A quantitative research was conducted using 26 randomly selected non-financial firms listed on the NSE. Using historical financial data from companies’ financial statements, a correlational and regression analysis was conducted using Return on Equity (ROE) as the dependent variable. Notably, diagnostic tests such as the test for multicollinearity, autocorrelation, normality tests were conducted before the Pearson’s correlation test. Importantly, the Panel Data Model was use to determine the goodness of fit, while the Panel Least Square model was used to select the appropriate model for regression analysis. The Fixed Effect Model was the most suitable model. As a result, the findings showed that board size and independence had statistically insignificant effects on the dependent variable, while board diversity (gender diversity) had a statistically significant influence on the financial performance of non-financial firms listed on the NSE.

Intellectual capital and financial performance: A comparative study

Intellectual Capital (IC) is a driving force behind the financial performance of non-financial firms. Investing in intellectual and physical capital allows companies to optimize their financial performance by maximizing resource utilization. This study aims to determine whether IC efficiency impacts the financial performance of listed Pakistani and Indian companies between 2010 and 2020. Return on Assets (ROA) and Return on Equity (ROE) are used to calculate financial performance, and IC is calculated using the modified Value-Added Intellectual Coefficient (MVAIC) model. Regression analysis is performed using the STATA software developed by the South Texas Art Therapy Association. Human Capital (HC), Structural Capital (SC), and Capital Employed (CE) have a significant impact on Pakistani and Indian firms’ financial performance. Resource-based theory (RBT) supports these findings. The findings should provide management with a prompt to improve financial performance and emphasize the importance of IC. A rare study has addressed the impact of IC on firm financial performance using the MVAIC model, rather than the VAIC model, in Pakistan and India.

The Moderating Impact of Firm Characteristics on Free Cash Flows and Financial Performance: Evidence from Pakistan Stock Exchange

This study aims to discover effect of firm characteristics on the linkage of free cash flows and firm financial performance. Precisely, the current study has two main objectives: first, to setup the relationship between free cash flows and financial performance of non-financial firms; secondly, to investigate the moderating impact of firm characteristics of this relationship. The firm characteristics considered in this study are firm size and age. The study used secondary panel data which was obtained from 95 non-financial firms registered at PSX for the period of 2009-2019. Regression analysis was used in data evaluation. Results pointed out that free cash flows have substantial positive effect on financial performance, while firm' characteristics have a negative significant moderating effect on this relationship. The key academic input of the study is that free cash flows have a positive statistically significant effect on financial performance. The study suggests that firm managers, shareholders, and practitioners should focus more on the need for firms to generate more FCF.”

Working Capital Management and Financial Performance: Evidence from Non - Financial Firms Listed in Nepal Stock Exchange Limited

Purpose: This study examines the impact of working capital management on the financial performance of the non-financial firms listed on the Nepal Stock Exchange (NEPSE). Design/Methodology/Approach: The study is based on panel data analysis of 23 non - financial firms listed in NEPSE from 2001 to 2018 with 194 firm-year observations. When the return on assets (ROA) is used as a dependent variable, the Hausman Test and Wald Test suggest that a Fixed Effect Model (FEM) is acceptable, whereas Random Effect Model (REM) is appropriate when the return on equity is used as a dependent variable. Findings: The results reveal that longer receivable conversion period and inventory conversion period negatively affect the financial performance of non-financial firms. In addition, a longer payable deferral period negatively affects the return on equity of non-financial firms in Nepal, indicating that firms can reap profit by reducing the deferral period. Finally, the study shows a statistically significant relationship between the cash conversion cycle and return on assets. Research Limitations/Implications: The research is based solely on secondary data. As a result, the study contains all of the drawbacks that come with financial statements in annual reports. Practical Implications: The findings of the study will help owners and financial managers in better understanding the relationships between working capital management and financial performance of the firms, as well as formulating firm-specific working capital policies. Moreover, research scholars will benefit from this study as it aims to add to the existing literature by enhancing knowledge of the impact of working capital management on financial performance. Originality/Value: This is an original research study and examines the relationship between working capital management and financial performance of non-financial firms listed in NEPSE.

Cash Management on Financial Performance of Non-Financial Firms Listed at Nairobi Securities Exchange

Cash is frequently referred to as the most valuable asset for corporate operations, yet it has also been proven to be a non-returning asset. Financial managers attempt to achieve a balance between the amount of cash available to support business operations and avoiding excessive cash holdings due to the opportunity cost of lost profits. Non-financial entities that are listed on the Nairobi Securities Exchange are known as public non-financial firms. These companies, like all other businesses, are worried about their financial performance since it has a significant impact on their value addition to the economy in general and shareholder wealth maximization in particular. These companies' financial performance, on the other hand, has been volatile over the time period examined in this analysis, which runs from 2004 to 2018. It's unclear whether cash management has had any impact on this performance. On the study variables, this study null hypothesized that cash management has no significant effect on financial performance of non-financial firms listed on the NSE, based on the Keynesian Liquidity Preference Theory and Miller-Orr stochastic cash management theory, as well as the deterministic cash conversion model. The cash flow data and corporate profits needed to calculate return on assets were obtained from these companies' published financial statements. The p-value and the t-statistic were utilized to create the panel data set that was employed in this investigation via regression analysis at a 95 percent confidence interval. The data show that cash management has a favorable impact on a company's financial performance. The findings are consistent with the Keynesian liquidity preference theory, which assumes that businesses keep cash on hand not only for transactions but also for risk management and investment. It appears that the opportunity costs of cash retained for transactions are more than compensated by the opportunity benefits of cash for security and arbitrage profits. Because of the stringent laws that govern banks and other financial institutions, this study was limited to non-financial businesses. As a result, it is suggested that a comparable modified study, with regulatory environment restrictions, be conducted to determine the impact of cash management among financial institutions.. Keywords: Cash management, financial performance, firm size, Non-financial firms listed in NSE DOI: 10.7176/RJFA/12-23-01 Publication date: December 31 st 2021

The Effect of Leverage and Debt Maturity on the Corporate Financial Performance: Evidence from Non Financial Firms Listed at Pakistan Stock Exchange

Purpose This study examined the effect of leverage, debt maturity on corporate financial performance of non-financial firms listed at the Pakistan Stock Exchange. Targeted population of this study was 100 firm listed at PSX as KSE-100 index out of which 74 non-financial firms were selected from 28 different sectors for the period of 5 years 2013 to 2017. 
 Design/Methodology/Approach: Financial performance measured by ROA, ROE, while leverage, short term leverage, long term leverage taken as independent variables, four variables were taken as control which are size, current ratio, sale growth, tangibility. On the basis of Hausman test, results of random effect model were found appropriate.
 Findings: ST and LT Leverage have a negative significant and insignificant effect on financial performance (ROA) respectively, moreover long term leverage has a positive and significant but short has a negative and insignificant effect on ROE. The results of the control variables showed that size has a negative and significant effect on ROA and ROE, whereas current ratio has insignificant and negative effect on ROA, ROE. Sale growth has a positive and insignificant effect on firms ROA and ROE. Tangibility has insignificant and negative effect on financial performance.
 Implications/Originality/Value: This study is consistent with traditional trade-off theory and recommended that management of the non-financial firms listed at the PSX should employ minimal debt level or use an optimal level of capital structure and also to attract good management thus to improve their financial performance.

Effect Of Debt Financing On Financial Performance Of Listed Non-Financial Firms In Kenya

This study sought to examine the effect of debt financing on the financial performance of non-financial firms listed on the Nairobi Securities Exchange in the five-year period 2013 to 2017. Using a sample of 23 listed non-financial firms data was collected from published financial statements of the sampled firms and analysed statistical using the panel data regression method. The independent variables were short-term, medium term and long-term debt while the explained variable was return on equity. Three control variables, firm size, sales growth and growth opportunities, were included and considered as having an effect on the relationship between the independent and dependent variables. The study results observed that medium-term debt had a negative and statistical significant relationship with return on equity. Long-term debt had a positive but statistically insignificant relationship while short-term debt had a negative relationship with return on equity.

The Impact of Economic Indicators on Financial Performance of Non-financial Firms on Ghana Stock Exchange

Financial performance is one of the basic indicators that investors and creditors check in accessing the performance of firms. The purpose of this paper is to empirically examine the impact of economic indicators on financial performance of quoted non-financial firms on the Ghana Stock Exchange (GSE). The study focuses on the impact of RealGDP, Exchange rate, Inflation, Unemployment and Interest rate as determinant of economic indicators whereas Sales growth, Company size, Leverage and Efficiency from firms specific are used as controlled variables in checking the effect of these indicators on financial performance of these firms. ROA and ROE were used as proxies for financial performance of the listed firms. The study employed a panel data of 21 listed non-financial firms from the period of 2008 to 2017. The result revealed that Real GDP and inflation have significant positive impact on ROE. On the contrarily, economic indicators used for this study showed no level of significance with ROA. Company size recorded positive and negative significant impact on ROA and ROE respectively, sales growth and efficiency were statistically significant with ROA. The study recommends government and regulatory authorities to come out with good policies that will help boost the economic activities in the country and drop inflation rate since they have the tendency of affecting non-financial firms’ performance. Moreover, management must ensure full utilization of its internal resources by focusing on diversification and expansion since company size, efficiency and sales growth affect the return on assets and equity of firms. In addition, management should warily consider inflation rate when making financial decision due to its impact on financial performance.

Effect of Board Diversity, Promoter’s Presence and Multiple Directorships on Firm Performance

Purpose: This article analyses the effect of board diversity on the financial performance of non-financial firms listed in the Nifty Index. Specifically, it examines the mediation effect of the promoter’s presence and multiple directorships on the financial performance of the firm, that is, return on net worth (RONW), return on equity (ROE) and its sales growth. Methodology: The article uses the hierarchical regression model to analyse the effect of board diversity on financial performance. The presence of the promoters on the board and multiple directorships are taken as the control variables. Findings: Empirical results show the significant effect of the promoter’s presence on the board on the firm’s earnings and a significant positive effect of firm age, board size, age diversity and experience diversity on the financial performance. However, we do not find any statistically significant relationship between firm size and financial performance in any model. The results also show that the age and experience of the female directors are significantly less compared to the male directors. However, the age and experience of the non-executive directors and independent directors are found to be higher among the other positions held by the directors. We also find a negative relationship between multiple directorships in other firms and the financial performance of the firm. Value: The article proposes that there should be a greater number of independent directors in a firm that has its promoter on the board. One recommendation for the board is to reduce the number of directorships held in other boards to ensure more constructive contribution towards the firm’s financial performance. The article studies the effect of the promoter’s presence on the board and multiple directorships held by board members on the financial performance of the firm.

Relationship between Stock Market Volatility, Stock Market Liquidity and Financial Performance of Non-Financial Firms Listed on Pakistan Stock Exchange

This paper analyzed the empirical relationship between different measures of stock market volatility, traded volume, market and accounting measures of financial performance of 260 firms panel data listed on Pakistan Stock Exchange using Generalized Autoregressive Conditional heteroskedasticity (GARCH) and Generalized moments methods (GMM). The study found that financial performance has significant positive relation with traded volume and significant negative relationship with stock market volatility both in two measures. The study used both microeconomic and macroeconomic measures to calculate stock market volatility and both measures have significant effects on financial performance.

EFFECT OF USAGE OF DERIVATIVE FINANCIAL INSTRUMENTS ON FINANCIAL PERFORMANCE OF NON-FINANCIAL FIRMS

Purpose: The purpose of this study is to examine the effect of derivative financial instrument utilization on the financial performance of non-financial firms recorded at the Nairobi Securities Exchange. The objectives that guided this study are to assess the impact of use of derivatives in risk management on financial performance of non-financial firms listed on the Nairobi Securities Exchange (NSE).
 Methodology: The study embraced the regression model. A census of all the 47 non-financial firms listed at the NSE as at December 2017 constituted the target population where only 11 listed non-financial firms were financial derivative instruments users. The study utilized qualitative and quantitative research techniques especially the utilization of descriptive research design. The data for this study was collected using questionnaires, audited financial statements and annual reports of individual firms for the multi year time frame covering 2013-2017 (the two years comprehensive).
 Results: The study discovered that greater part of the firms (66.67%) utilizes Forwards, 22.22% utilize Swaps and 11.11% utilize Futures and Options for financial risk management. From the study the outcomes were as per the following: presence of debt in the financial structure of the non-financial firms listed at the NSE does not influence its financial performance as estimated by return on assets (ROA), use of derivatives in efficiency in trading influences the financial performance of the firms, use of derivatives in price stabilization is statistically significant and utilization of derivatives in price discovery does not influence the financial performance of the firms. By and large, the performance of the recorded non-financial firms at the NSE amid the time of study was 8.13 with a standard deviation of 10.67.
 Unique contribution to Theory, Practice and Policy: The study recommended that firms should combine both debt and equity in their financial structure. It is therefore incumbent on firms’ managers and financial advisors to continuously study the market and advice on the appropriateness of the proportions of the various sources of finance based on market circumstances at any given time.

Effect of Equity Financing Options on Financial Performance of Non-Financial Firms Listed at the Nairobi Securities Exchange, Kenya

Corporate finance managers worldwide have for a long time consistently sought to maximize shareholders’ wealth and their firm’s market value through their decisions on firm’s capital structure. However, both scholars and practitioners of corporate finance are yet to agree on the optimal mix of equity and debt that maximizes a firm’s financial performance. The purpose of this study was to examine the effects of equity financing options namely common stock (CS), retained earnings (REN) and total equity (TED) as ratios of total assets on the financial performance measured as return on assets (ROA) and return on equity (ROE) of Kenya’s listed firms. Utilizing panel econometric techniques namely pooled ordinary least squares (OLS), fixed effects (FE) and random effects (RE), the study analyzes the effects of equity variables as ratios of total assets on the financial performance of 40 non-financial firms listed at the Nairobi Securities Exchange between 2009 and 2015. The study’s empirical results show that CS ratio significantly and negatively affects ROA while REN ratio has a statistically significant and positive effect on ROA. Overall, TE ratio positively and significantly affects ROA. On the contrary, ROE is not significantly affected by the equity variables in the sample. While the non-significant effects of equity on ROE find support in Modigliani and Miller’s capital structure irrelevance theory, the positive effects of REN ratio and the negative effects of CS ratio on ROA, which are largely supported by the trade-off theory, may explain the pecking order theory’s prioritization of internal capital sources over debt and equity issuances. Thus, corporate finance managers should find a place for internal financing options particularly retained earnings to maximize equity holders’ returns on assets employed. Additionally, corporate finance managers should endeavour to minimize on the use of CS due to its negative effects on shareholder earnings on their assets. Nonetheless, a reasonable balance between CS and REN should be considered since the positive effect between TE and ROA is an appraisal for an optimum mix of equity financing options.

DOES OWNERSHIP STRUCTURE AFFECT FIRM’S PERFORMANCE? EMPIRICAL EVIDENCE FROM PAKISTAN

In Pakistan, the ownership of majority of the firms is characterized by the concentration of different groups such as family members, associated firms, institutional investors and insiders. The present study aims to investigate whether different ownership structure including family ownership, associated ownership, institutional ownership, concentrated ownership, managerial ownership, block holding, and foreign ownership contribute to the financial performance of nonfinancial firms listed at the Pakistan Stock Exchange (PSX). Findings suggest that a firm’s performance increases significantly in the presence of associated ownership, concentrated ownership, institutional ownership and block holding. This indicates that these ownership structures add value and help in reducing agency problems. On the other hand, family and managerial ownership have a negative relationship with firm performance. These findings are consistent with the hypothesis of minority shareholder expropriation which states that when family ownership and managers’ involvement is higher in a firm, they exploit the funds of minor shareholders. Similarly, foreign ownership also does not add value.

Relationship Between forward-looking information disclosure and Financial Performance of Non-Financial Firms Listed in Nairobi Securities Exchange, Kenya

This study envisaged to determine the relationship between forward-looking information disclosure and financial performance of non-financial firms listed in the Nairobi Securities Exchange (NSE). Performance indicator was market based measurement (Tobin’s Q ratio). The study employed descriptive cross-sectional research design. A census of 45 non- financial firms listed in NSE, was taken. The study used secondary panel data contained in the annual reports of non-financial firms listed in NSE, Kenya. The data was extracted from the NSE hand book for the period 2011-2015 and from companies’ websites. This was complimented by semistructured questionnaires which were given to 45 Chief Executive Officers. Data analysis was done by both descriptive (measures of central tendency and dispersion) and inferential statistic (multiple regression analysis and correlation analysis) with help of Statistical Packages of Social Sciences (SPSS version 22). The results revealed that there was a significant positive linear relationship between forward-looking information disclosure and firm financial performance measured by Tobin’s Q of listed non-financial firms in Kenya. Based on these findings the study concluded that listed non-financial firms should voluntary disclose their forward-looking information to all their stakeholders.