Long-term Debt Ratio Research Articles

Capital structure of single family office-owned firms

Single family offices (SFOs) manage trillions of dollars worldwide. The enormous value of assets under management highlights their key role as a cohesive wealth management tool globally. Despite the increasing relevance of SFOs, research on SFOs is still in its early stages. Particularly little is known about the capital structure of the firms owned by SFOs. By drawing on a hand-collected sample of 173 SFO-owned firms in the DACH (Germany, Austria, Switzerland) region, we compare the capital structure of SFO-owned firms with the capital structure of family-owned firms. Our empirical results show that SFO-owned firms display a higher long-term debt ratio than family-owned firms, indicating that SFO-owned firms follow trade-off theory, similar to private equity-owned firms. Additionally, we show that this effect is stronger for SFOs that sold their original family firm. In contrast, family-owned firms tend to be more conservative in their financial decision-making and seem to follow the logic of the pecking order theory.

Covid-19 Pandemic and Capital Structure: Evidence from West Africa

The question of whether the Covid-19 pandemic is a predictor of firms’ capital structure has remained unanswered following limited empirical studies. The financial structure of every business is its lifeblood which is the most important decision-making at any stage of the business’s operation. This study investigated the effect of covid-19 on the capital structure of non-financial firms listed on the Ghana stock exchange (GSE). The study focused on long-term debt, short-term debt and total debt ratios as a measure of capital structure. The study adopted the ex-post facto research design, the population consisted of 23 listed non-financial firms out of which 21 were sampled. Data was sourced from audited annual financial reports of the selected companies. Panel regression and ANOVA were used to analyze the data. The findings of the study revealed that covid-19 pandemic showed an insignificant effect on capital structure measured as long-term debt. This implies that the pandemic did not cause significant volatility to the long-term debt of non-financial firms in Ghana within the period of the study. Furthermore, the covid-19 pandemic showed no significant effect on short-term debt. This indicates that short-term borrowings for non-financial firms listed on GSE were not significantly affected by the covid-19 pandemic. The findings of the study further revealed that the covid-19 pandemic does not have a significant effect on the total debt of listed non-financial companies in Ghana. The study recommends that the capital structure policy of non-financial firms listed on the Ghana Stock Exchange should be maintained. This is because the study revealed that the severity of the covid-19 pandemic on business operations did not significantly affect the capital structure of the firms as measured by long-term debt, short-term and total debt.

Phân tích các yếu tố ảnh hưởng hiệu quả hoạt động của doanh nghiệp ngành dầu khí Việt Nam

This study analyzed the impact of macroeconomic and financial factors on the performance of oil and gas companies listed on the Vietnamese stock market between 2012 and 2021. The findings of the research suggest that financial leverage, fixed asset ratio, exchange rate, and inflation rate negatively affect the performance of oil and gas companies. Conversely, company size, long-term debt ratio, and listing status positively impact the performance of these businesses. Furthermore, the research indicates that these financial and macro factors consistently impact the performance of oil and gas enterprises before and after their listing on the stock exchange. The study also highlights the changes in the factors that affect oil and gas companies during the COVID-19 pandemic. For instance, the leverage ratio, fixed asset ratio, long-term debt ratio, and inflation rate have been impacted by the pandemic. The results of this study provide managers with an understanding of the factors that affect the efficiency of oil and gas enterprises. As a result, they can make informed decisions when operating their businesses.

The Effect of Capital Structure on Firm Value: A Study of Companies Listed on the Vietnamese Stock Market

This research investigates the relationship between capital structure and firm value for companies listed on the Vietnamese stock market. The study utilizes data from audited financial statements of 769 companies spanning from 2012 to 2022, amounting to 8459 observations. Employing various estimation methods, such as ordinary least squares (OLS), fixed effects model (FEM), random effects model (REM), and generalized least squares (GLS), the impact of capital structure on key financial indicators, namely, return on assets (ROA), return on equity (ROE), and Tobin’s Q, is assessed. The findings indicate that the debt ratio exhibits a positive influence on ROA, ROE, and Tobin’s Q, with Tobin’s Q displaying the most pronounced impact (0.450) and ROA showing the weakest impact (0.011). However, the long-term debt ratio does not significantly affect firm value. Interestingly, both short-term and long-term debt ratios have negative effects on ROA, ROE, and Tobin’s Q, with the most substantial impact on Tobin’s Q reduction (0.562). Based on these research outcomes, the authors offer valuable recommendations to companies, investors, business leaders, and policymakers to make informed decisions in selecting an optimal and sensible capital structure.

THE EFFECT OF LONG-TERM DEBT FINANCING ON PROFITABILITY OF COMMERCIAL AIRLINES IN KENYA

<p>The objective of this study was to assess the effect of long-term debt financing on the profitability of commercial airlines in Kenya. Pecking order theory directed the study. A cross-sectional research design was adopted in the study. The census sampling technique was. Secondary data was collected from audited financial statements. Panel data was analyzed using descriptive and inferential statistics. Descriptive statistics consisted of minimum values, maximum values, mean and standard deviation and inferential statistics consisted of correlational analysis, Hausman test for fixed and random effects and random effects models. Hausman test indicated that the random effect model was appropriate for the study. The study results showed that long-term debt financing has a negative and statistically significant effect on the profitability of commercial airlines in Kenya. This is supported by a regression coefficient of –0.2318 and a p-value of 0.038. The study recommends that executives of commercial airlines should aim to have a long-term debt that is manageable by the company and ensure that the long-term debt load is compatible with a favorable long-term debt ratio for the company to function without worrying about defaulting on loans.</p><p> </p><p><strong>JEL:</strong> R40; L20; G20</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/soc/0045/a.php" alt="Hit counter" /></p>

Financial Analysis of Hyatt Hotels Corporation

Due to the epidemic, as well as the implementation of restrictions, the hotel industry has had a significant impact. Taking Hyatt Hotel as the entry point, this paper analyzed Hyatt Hotel's operating status and recovery from the epidemic by comparing the important accounting elements and financial ratio in different dimensions with the other three hotels, based on the financial data from their annual reports (Intercontinental Hotels Group, Carnival Corporation, and H World Group). Through the research, it is found that with the reduction of the restrictive policy, Hyatt recovered well from the epidemic, especially in the factors of net income gained the highest profit among the peers, and the ROE which has a much higher level than its peers at the same time they maintain a low long-term debt ratio. Also, its comprehensive operating condition was greater than that of its peers. However, there are still opportunities and challenges in the future, and it still needs to wait and see what happens next.

VAT rate cut and enterprise deleveraging: Evidence from China

‘Deleveraging’ is an important objective of China’s economic macro-control. Tax cuts are an important measure to promote enterprises’ deleveraging and reduce operating costs and financial risks. This study employs the 2018 value-added tax (VAT) rate reduction by the Chinese government in a quasi-natural experiment with financial data from listed companies from 2016 to 2019 as research samples, applying the difference-in-differences (DID) model to analyse the policy’s deleveraging effect. The results show that the VAT rate reduction significantly reduced the leverage and current debt ratios of enterprises in the treatment group but had no significant effect on long-term debt ratio. Further investigation shows that the VAT rate reduction’s deleveraging effect was more significant for state-owned, highly leveraged companies, small and medium-sized enterprises and companies in eastern China. In western China, the total leverage ratio of enterprises experienced no significant change, current debt ratio increased, long-term debt ratio decreased and financial risks and financing constraints further intensified. This study’s conclusions have significance as a reference for China and other developing countries to improve tax reduction policies, stimulate enterprise vitality, reduce enterprise financial risks and effectively navigate the economic recession.

The effect of capital structure on the financial performance of companies listed on the Algerian stock exchange: Case of the Saidal group

The present study aims to shed light on the impact of capital structure determinants on the financial performance of a public economic firm listed on the Algerian Stock Exchange, represented by the Saidal Group, during the period from 2010 to 2021. Furthermore, the study relied on the financial statements (balance sheet and income statement table) published on the official website of the stock exchange to collect the financial data of the firm. In pursuance of this aim, three multiple models were estimated in which dependent variables expressing financial performance were represented in each of the return on assets (ROA), return on equity (ROE), and earnings per share (EPS), while the independent variables expressing the determinants of the capital structure were represented in each of the ratio of medium and long-term debt to total assets (MLTDTA), the ratio of shortterm debt to total assets (STDTA), and the self-financing capacity (SFC). In addition to this, the control variables were used in the models to represent the liquidity and size of the firm, which was measured in the Neperian logarithm of its total assets. The study reached a set of results, the most important of which are the presence of a statistically significant positive relationship between the capital structure, as measured by the firm's self- inancing capacity, and the financial performance with its three indicators, as well as the existence of a statistically significant negative relationship between the ratio of medium- and long-term debt to total assets and financial performance. As for the ratio of short-term debt to total assets, it has a negative and statistically insignificant impact on both the return on assets and the return on equity, but also has a negative and statistically significant impact on earnings per share. In light of this, the study recommends that the firm should rely on internal financial sources rather than external financial sources to finance its various investments in order to improve its future financial performance

Effect of Capital Structure on the Profitability of Plastic and Packaging Companies Listed in Vietnam

Purpose: The study aimed to analyse the impact of capital structure on the profitability of plastic and packaging companies listed on the Vietnam Stock Exchange - VNX (HNX, HoSE and Upcom). Theoretical framework: The study inherits previous studies on the relationship between capital structure and profitability to determine the capital structure that affects profitability. Design/methodology/approach: Using Qualitative Research (Synthetic Methods; Statistical methods, description; Inductive and interpretive methods) and quantitative research methods (linear regression methods). Findings: The author has identified two independent variables that represent a capital structure that strongly affects the profitability of enterprises, including: (1) Short-term debt ratio (STD); (2) Long-term debt ratio (LTL). Research, practical and social implications: Based on the research results, the author offers several discussions and assessments on the critical role of adjusting the optimal capital structure for plastic and packaging companies, in addition to financial solution recommendations aimed at improving profitability for companies. Originality/value: Through a study of 30 plastic and packaging manufacturing companies, corresponding to 360 observations in the period of 2010 – 2021.

English

The Tax Cuts and Jobs Act (TCJA), effective on December 22, 2017, is the most comprehensive overhaul of the U.S. tax code in the last 30 years. Historically, when corporate tax rates are high, the interest deduction on debt is greater, thereby reducing firms’ taxable income. However, with the new reforms significantly reducing corporate tax rates, the deductibility of the interest is no longer as favorable. In this paper, the effect of the TCJA on corporate debt ratios is analyzed. The authors hypothesize that corporate debt ratios have decreased since the passage of the TCJA.  The results of the paper support our hypothesis that the long-term debt ratio is significantly negatively related to the implementation of the TCJA.   Key words: Tax cuts and jobs act; corporate tax; debt ratio; short-term debt; long-term debt.

Social trust and the choice between bank debt and public debt: Evidence from international data

Motivated by existing research on the informational and monitoring role of social trust, we examine how social trust affects firms’ choice between bank debt and public debt. Using firm-level data from 33 countries, we document that higher social trust is associated positively (negatively) with the long-term public (bank) debt ratio. The findings are robust when we control for other important country-level and firm-level factors. There are two possible channels of this association. We find that social trust affects debt structure through monitoring and borrowers’ incentive channels. To address potential endogeneity, we use instrumental variables, propensity score and entropy balancing matching, and large change analyses and document that our findings are robust. Examining the effect of debt structure on firm performance, we find that Tobin's Q associates positively with long-term public debt ratios in high-trust countries.

Green credit policy and the liquidity risks of heavily polluting enterprises.

As a kind of enterprises most affected by green policies-heavily polluting enterprises, whether the government's relevant policies can achieve its policy goals and what impact will be exerted on such enterprises is a critical issue. Based on the data of listed heavily polluting enterprises in China from 2007 to 2020, this paper uses the difference in differences model to test the impact of green credit policies on the liquidity risk of heavily polluting enterprises. The results show that the green credit policies intensify the liquidity risk of heavily polluting enterprises. Moreover, the green credit policies increase the financial and stock liquidity risks of heavily polluting enterprises by reducing the long-term debt ratio and information transparency. Green innovation and equity balance weaken the positive impact of green credit policies on the liquidity risk of heavily polluting enterprises. Heavily polluting enterprises can reduce the impact of green credit policies on their liquidity risk by increasing investment in green innovation and improving ownership structure.

Capital structure and earnings management: evidence from Pakistan

PurposeThe purpose of this study is to investigate whether capital structure affects accruals and real earnings management (AEM and REM) of nonfinancial firms listed on Pakistan Stock Exchange (PSX). Moreover, to investigate whether institutional development (ID) moderates the relation between capital structure and earnings management (EM).Design/methodology/approachData were taken from annual reports of nonfinancial firms listed on the PSX during 2012–2019. Data of 150 firms for a period of eight years were found completed with respect to the variables used in this study. The generalized moments of methods estimator is used to estimate the effects of explanatory variables on earning management. Furthermore, fixed and random effects methods were used to estimate the impact of capital structure on AEM and REM.FindingsResults show that all three measures of capital structure (i.e. total debt ratio, long-term debt ratio and short-term debt ratios) are inversely related to AEM. In contrast, all measures of capital structure are positively related to abnormal cash flow from operations. Total debt ratio and long-term debt ratio are negatively while short-term debt ratio is positively related to abnormal discretionary expenses. Total debt ratio and short-term debt ratio are significant and negatively related to abnormal production cost. Additionally, interaction terms of ID (i.e. rule of law and regulatory quality) significantly moderate the controlling role of debt on discretionary accruals. In sum, results show that the use of debt induces lender's monitoring. Consequently, managers move toward REM because of lower probability of being exposed.Practical implicationsFindings of this study have significant implications for managers and regulatory authorities. For instance, the use of debt increases the lender’s influence which restricts the managers to be involved in EM practices. Moreover, regulatory authorities are required to address the loopholes in regulations to refrain the managers to be engaged in EM.Originality/valueTo the best of the authors’ knowledge, this is the first study in Pakistan that has explored the impact of capital structure on AEM and REM. More importantly, a careful review of the literature affirms that this study is among the few studies that have used ID as a moderating variable to explain the relation between capital structure and EM.

Bank stability, performance and efficiency: an experience from West Asian countries

PurposeThe banking sector in West Asia has always experienced positive growth except for Palestine. Apart from some negligible outlying outcomes in some countries that have faced political crises and war, most West Asian countries have gained bank profitability and efficiency. However, the stability in the banking sector has been rarely examined in the literature. Hence, this study sheds light on examining bank stability by considering 12 countries in West Asia.Design/methodology/approachA fixed effect panel data regression analysis is employed on strongly balanced panel data using data from 2004 to 2018.FindingsResults reveal that the net interest margin has a positive relationship with bank stability. The bank’s stability rises as the net interest margin improves. Furthermore, the non-interest income reveals a positive significant impact on the stability of banks, depicting that the increase in non-interest income increases the stability of banks. Additionally, the non-interest expense also reveals positive significant results with the stability of banks. Nevertheless, leverage ratio and long-term debt portray a negative significant impact on banks’ stability. The finding reveals that higher long-term debt and leverage ratios may decrease the stability of the banks in West Asia.Practical implicationsOverall, the authors’ findings add to the literature on the stability of the banks by providing some new but significant information. Some of the recommendations may be beneficial to the long-term success of 12 Western Asian countries’ banks.Originality/valueThe study examines the stability of banks by incorporating both profitability and operating efficiency along with net-interest income, which extends to the current literature’s insight.

IMPACT OF CAPITAL STRUCTURE ON FINANCIAL PERFORMANCE OF LISTED AGRICULTURAL COMPANIES IN NIGERIA

A company is usually faced with the challenge of financing investments; the management is to decide on the optimal mix of capital structure decision. This study sets to investigate the influence that capital structure of a firm has on financial performance of listed manufacturing firms in Nigeria for period spanning from 2017-2021. The dependent variable of the study is financial performance proxy by return on asset (ROA) while the independent variable of the study is capital structure proxy by long-term debt, short term debt, total debt ratio and total equity ratio. The population of the study consist of all the 5 listed manufacturing firms in Nigeria and the sampling technique was the census arriving at a 25 firm year observations. The multiple regressions was employed for the data analysis and the study revealed that long-term debt ratio has a negative insignificant relationship with return on asset while short-term debt, total debt ratio and total equity ratio have positive significant influence on return on asset. The study recommends that the management of listed manufacturing firms in Nigeria should pay attention in curtailing long-term debt and improving on short term debts in order to improve financial performance.

Bankaya Özgü ve Makroekonomik Faktörlerin Bankaların Sermaye Yapısı Üzerine Etkisi

This study aims to investigate the bank-specific and macroeconomic factors that affect the capital structure of banks. The study used panel data from 42 banks operating in Turkey from year 2003 to 2017. In the analysis, total, long-term and short-term debt ratios are used as a proxy for capital structure. The findings show that bank size, growth opportunity, interest rate and exchange rate positively affect the three leverages, while profitability has a negative effect. Most of this study findings are related to the expectations of pecking order theory.

Profit, cash flow, and leverage: the case of ASEAN stock market performance during the COVID-19 pandemic

PurposeThe coronavirus disease 2019 (COVID-19) outbreak in the first quarter of 2020 has caused a severe decline in stock markets worldwide. While prior studies in developed markets found that workplace closure can negatively impact the capital market (e.g. Ozili and Arun, 2020), lesser is known about how it impacts emerging capital markets, which may have different characteristics and behaviour (Harjoto et al., 2021). Hence, this study seeks to uncover stock performance around workplace closure dates of firms incorporated in ASEAN countries and investigates the role of accounting fundamentals in mitigating workplace closure policy's effects on stock performances.Design/methodology/approachUsing an event study methodology, the authors measure the cumulative abnormal returns (CARs) around workplace closure dates. The authors then use cross-sectional analysis to analyse whether the accounting fundamentals, specifically profitability, cash flow, and leverage, are associated with the CAR. This cross-sectional study involves 1,720 firms that are incorporated in the ASEAN countries.FindingsThis analysis indicates that, on average, ASEAN capital markets react negatively to workplace closure policies. The authors then find that the CARs around workplace closure dates are positively associated with the current ratios and are negatively associated with long-term debt ratios. This study’s results thus indicate that firms with a higher liquidity and a higher solvency experience a less adverse impact of the COVID-19 pandemic than other firms. The authors also find that the associations are more robust for (1) firms in industries more affected by COVID-19 and (2) firms located in countries with more severe cases. Additionally, contrary to this study’s expectation, the authors do not find meaningful associations between CARs around workplace closure dates and firms' cash flow from operation and profit respectively. This study’s results suggest that investors view prior performances related to firms' ability to generate operating cash flow and profit as less relevant to measure firm performance around the workplace closure event.Research limitations/implicationsThis study’s results contribute to studies examining fundamental accounting roles during the COVID-19 era, specifically in emerging economies. The findings are critical for investors in understanding the company fundamentals associated with stock price performance in emerging markets during the recent health-related crisis.Originality/valueMost studies analysing cross-sectional differences in stock returns during the COVID-19 era focus on industry-level differences and use observations from developed markets (Sinagl, 2020; Ramelli and Wagner, 2020). Studies using firm-level analysis in emerging markets are still limited. The authors expand prior studies by using firm-level analysis that spans six countries in ASEAN.

Whether Green Finance Improves Green Innovation of Listed Companies-Evidence from China.

Facing the intensification of global carbon emissions and the increasingly severe pressure of environmental pollution, listed companies urgently need to promote green innovation, achieve green transformation, and alleviate environmental problems. Green finance policy has played a significant role as a financial strategy for environmental governance in affecting green innovation level over the years. In this context, taking the green finance reform and innovation pilot zone (GFRIPZ) implemented in 2017 in China as a quasi-natural experiment, this paper analyzes the impact of green finance policy on green innovation level of listed companies by the difference-in-difference model. Based on the data of Chinese A-share listed companies from 2008 to 2020, the results of empirical analysis show that green finance significantly promotes green innovation of listed companies. The effect is profound on green utility model patents, but less pronounced on green invention patents. Among all these pilot zones, the policy effects of GFRIPZ ranked in descending order are Zhejiang, Guangdong, Jiangxi, Guizhou, and Xinjiang. In addition, green finance has a more significant impact on heavy-polluting industries, large and state-owned enterprises, and listed companies located in the eastern region. Furthermore, the effects of industry heterogeneity ranked in descending order are energy, manufacturing, processing, and engineering industry, while it is not obvious in the service industry. Mechanism analysis suggests that the effect is driven by a reduction in the cost of debt financing and an increase in the long-term debt ratio. The findings provide implications for policymakers to promote the level of green innovation and environmental governance. Therefore, policymakers should support the long-term creative development of green invention patents by reducing the cost of debt financing and increasing the long-term debt ratio and consider the heterogeneous characteristics of listed companies when formulating green finance policies.

DETERMINANTS OF CAPITAL STRUCTURE: AN EMPIRICAL STUDY OF LISTED TEXTILE COMPANIES IN INDIA

Purpose --This paper aims to empirically investigate the capital structure determinants of Textile Industries of India listed on NSE (National Stock Exchange) during the Year of 2014-18 with a particular focus on short-term debt Ratio and long-term debt Ratio. Design/methodology/approach –Fixed affect panel data regression were used to analyze a sample of 18 Indian Textile Companies listed on NSE (National Stock Exchange) for which complete financial information was available for a Five year period, i.e. the 2014-2018. Findings – The results indicate that there is a significant and negative relationship between profitability, Short-Term, and Long-Term Debt Ratio. Moreover, The Short-Term Debt ratio is significant with Tangibility of the firm and Net Commercial Trade Position, Where Tangibility of the firm is negatively related and Net Commercial Trade Position is positively related. Short-Term Debt Ratio is not significant with Current ratio, Net Commercial Trade Position, Number of Non-Executive Members, Number of Executive Members Number of Audit Meetings, Number of Board Meetings and Quick Ratio, These all variable are having positively related except Quick Ratio. Whether Quick Ratio is negatively related. Practical implications – As debt policy influences Current Ratio, Net commercial Trade Position, Non-debt Tax Shield, Number of Non-Executive Members, Number of Executive Members, Number of Audit Meetings, Number of Board Meeting, Quick Ratio, Return on Assets, Tangibility of Firm financial institutions and managers may benefit from studies considering a relatively large number of capital structure determinants, several of which are linked to short- and long-term debt in various ways.

Effects of financial frictions on employment: Evidence from Japan during the Global Financial Crisis

This study examines the impact of a large credit shock on employment in Japan during the Global Financial Crisis in 2008–2009. To identify which firms faced a serious credit shock, we used variations in the long-term debt that must be repaid in the crisis. Because long-term debt takes more than one year to mature, it was determined independently of employment adjustments during the crisis. Therefore, using long-term debt maturing in a crisis, it is possible to identify the impact of exogenous tightening of the borrowing constraint on employment. We found that companies with a higher ratio of long-term debt maturing during the crisis had a greater negative impact on employment. In particular, the impact increased as the period passed from the shock, and this feature was most conspicuous in the group with the highest proportion of long-term debt maturing in the crisis.