Proxy For Profitability Research Articles

Effect of net trade cycle, firm size, and networking capital on profitability with cash holdings as intervening variables in cement companies in Indonesia

This study aims to examine a model that hypothesizes that the net trade cycle, company size, and net working capital of cement companies in Indonesia impact achieving a return on assets as a proxy for profitability through the company's cash holdings. The sample consists of 45 cement producers in Indonesia that have produced commercially before 2011 and regularly publish company annual reports. The results of the path analysis confirm that the net trade cycle, firm size, and networking capital do not affect the return on assets as a proxy for profitability. Likewise, statistically, it still shows the same results after being mediated with cash holdings. Moreover, found the effect of cash holdings on ROA. These findings can provide a starting point for further research to find a more appropriate formula to increase profitability, especially for companies in the cement sector in Indonesia, where utilization rates tend to be low, and market conditions are becoming very competitive.

The impact on bank profitability: Testing for capital adequacy ratio, cost-income ratio and non-performing loans in emerging markets

Following the methodology applied by Nguyen (2020), this paper tests for the potential impact of capital adequacy ratios on bank profitability in a Jordanian context by using static panel data for a sample of 24 banks covering the period 2008–2018. Furthermore, the study examines the viability of various potential determinants of profitability led by primary bank-specific variables: cost-income ratio, bank size, debt ratio, and non-performing loans. The main objective is to assess if and how capital adequacy ratios have had any measurable effects along with other bank-specific variables on bank profitability that is determined by the return on assets (ROA) and return on equity (ROE). The study’s main takeaway is that ROA is negatively correlated with the four capital adequacy ratios. However, mixed results are observed when ROE is used as a proxy for bank profitability. ROE is positively affected by both core capital to risk-weighted assets ratio and total capital to risk-weighted assets ratio. On the contrary, ROE is negatively affected by the core capital to total assets ratio and total equity capital to total assets ratio. It can be argued that the most significant finding in this paper is that the impact on bank profitability differs according to the proxy used for capital adequacy. Furthermore, the cost-income ratio is inversely related to both bank profitability measures and both bank profitability measures are inversely affected by the non-performing loan ratio.

The Impact of Equity Capital on the Bank’s Profitability: Evidence From Vietnam’s Banking System

From 2008 to 2019, this research examines the effect of equity capital on the profitability of 24 Vietnamese commercial banks. The research findings indicate that, when ROAA and ROAE are used to measure the bank's profit, the equity capital ratio (CAP) has a statistically significant positive effect on the ROAA while having a negative effect on the ROAE. Between 2013 and 2019, the CAP variable has a positive effect on the ROAA and ROAE, indicating that banks with a larger equity capital ratio achieved higher profitability. Furthermore, the deposits-to-assets ratio (DTA) and loan-loss reserves ratio (LLR) both have a negative effect on both proxies for bank profitability, although bank size (SIZE) has a negligible effect on bank profits in the majority of circumstances. Additionally, the rate of GDP growth and inflation (INF) have a beneficial effect on the bank's profitability. The study's objective is to present some critical policy implications for bank executives about the importance of adequate equity capital for the bank's sustainability development.

DOES WORKING CAPITAL MANAGEMENT AFFECT THE PROFITABILITY OF CONSUMER GOODS MANUFACTURING FIRMS IN NIGERIA?

The study examined the effect of working capital management on profitability of consumer goods manufacturing firms in Nigeria between the periods 2009 to 2018. The study adopted ex-post-facto design to generate data from the audited financial statements of the selected companies. The population of the study comprised 24 listed consumer goods manufacturing companies, out of which 10 were purposively selected based on the availability of data. The surrogates for independent variables were Account Payable Period (APP), Account Receivable Period (ARP), Inventory Turnover Period (INVTP), Cash Conversion Cycle (CCC) and Sales Growth (SG) as a control variable while the proxy for profitability was Return on Asset (ROA). Descriptive and inferential statistics coupled with multiple regressions were adopted to analyze the data. The Random Effects Generalized Least Square showed that ARP, INVTP, CCC had a negative and significant relationship with ROA while APP, SG had a positive and insignificant relationship with ROA. The study concluded that timely collection of debts and shorter inventory turnover period with cash conversion cycle enhance profitability of consumer goods manufacturing companies. Hence, the study suggested that the management of the companies should implement efficient working capital management for improved profitability.
 

Capital structure, liquidity, and firm size impact on profitability of mining industry in Indonesia

<p><em>The aim of this research is specifically for measuring the impact of capital structure, liquidity, and firm size on mining industry profitability in Indonesia, both partially and simultaneously. There are five independent variables within this study that are examined by descriptive statistical analysis, classical assumption test, multiple linear regression, and hypothesis testing. In order to select the observation data, purposive sampling method and panel data were used. Adopting quantitative research, there are 119 observation data from 17 samples within the period of 2013 to 2019. Financial ratios used in this study are Debt-to-equity Ratio, Short-term Debt to Asset ratio, Long-term Debt to Asset ratio, Current Ratio, Firm Size, and Return on Equity. DER, STDA, and LTDA are used as the measurement for capital structure, CR as the proxy of liquidity, and FIRMSIZE. Meanwhile, the proxy of profitability is Return on Equity (ROE) which is the dependent variable in this study. The findings of the study reveal that DER, LTDA, and Firm Size all have a significant impact on ROE. On the other hands, STDA and CR do not have a significant effect toward ROE. The most significant independent variable toward ROE is DER.</em><em></em></p>

PROFITABILITY AND THE FIRM'S VALUE

The cause of this research is to investigate and prove the impact of ROA, ROE, NPM, and GPM on firm’s value (Tobin's Q) either partially or simultaneously and decide which profitability ratio is more dominant in explaining Tobin's Q variance. The analysis was carried out on companies listed in the Jakarta Islamic Index (JII) for 2015-2020. The sample selected was issuers consistently registered with JII during the 2015-2020 period, and 11 issuers were selected. The results of the analysis show ROA and NPM partially sizeable good-sized effect on Tobin's Q, whilst ROE and GPM do not have any effect. ROA is positively correlated, and NPM is negatively correlated. However, all independent variables simultaneously have a significant impact on Tobin's Q. The R-square value of is 0.953648 shows that 95.37% of Tobin's Q variance can be explained by changes in ROA, ROE, GPM, and NPM, while other factors outside the model cause the remaining 4.43%. Of the four variables tested, ROA is the more dominant variable affecting Tobin's Q and can be used as the best proxy for corporate profitability.

CORPORATE GOVERNANCE AND ITS IMPACT ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN GHANA

The paper examines corporate governance and its impact on the financial performance of commercial banks in Ghana. The study employs a sample of twenty commercial banks with one hundred and thirty-eight observations. Data is sourced from the audited financial statements of commercial banks through the Orbis database for seven years, from 2011 to 2017. The study employs return on assets (ROA) as a proxy for bank profitability. Also, the study uses the cost to income ratio, bank size, net interest margin, board composition, bank age, and board size as independent variables. A random-effect and linear regression are applied. The empirical findings reveal that board composition, bank size, and net interest margin significantly impacted bank profitability. However, the cost to income ratio and bank age had a significant negative impact on bank profitability. On the other hand, board size had no significant impact on bank profitability. The study recommends that bank owners appoint experts and an adequate number of independent directors to help reduce conflict of interest and make effective decisions. Furthermore, banks should implement efficient cost-saving mechanisms to cut their overhead costs as enormous overhead costs reduce bank profitability. Banks should periodically organize campaigns on deposit mobilization to increase their assets as huge asset banks have the advantage of diversifying their assets, thus minimizing risk in the volatility period. Finally, banks should develop efficient loan recovery strategies to improve their asset quality, as this significantly impacts banks' net interest margin and profitability.

Loyal customers’ tipping points of spending for services: a reciprocity perspective

Purpose Controversy exists about the shape of the relationship between loyalty and profitability. This paper aims to address the possibly nonlinear effects of behavioral loyalty (BLOY) on customer spending (as a proxy for profitability). Building on social exchange theory and the norm of reciprocity, it examines the asymmetries between BLOY and customer spending and the moderating influence of personal communication (PCOMM) as a social reward and dispositional positive reciprocity as process evidence. Design/methodology/approach Study 1a (n = 309) gathered customer data from four restaurants and Study 1b (n = 252) data from hotel guests after they checked out. Study 2 is an experimental study with two manipulated factors (BLOY and PCOMM). In total, 295 participants from a large German online panel completed the study. Findings The results indicate an inverted-U shaped relationship between BLOY and customer spending: after reaching a turning point, customers gradually curb spending as their BLOY further increases. High PCOMM acts as a reciprocal response while triggering additional customer spending particularly at higher levels of behavioral loyalty; positive reciprocity adjusts the differences in customer spending when social rewards such as PCOMM are present. Research limitations/implications The asymmetric relationship between BLOY and customer spending is tested only for hedonic service settings. Practical implications Not all loyal customers spend more – companies need to meet their reciprocal obligations before they can benefit from increased customer spending. Originality/value The present research re-considers the nature of the relationship between BLOY and customer spending and reveals an inverted-U shaped relationship, with a turning point beyond which greater customer loyalty decreases customer spending. It finds converging process evidence for the mechanism of reciprocity underlying this relationship. This study also details the financial impact of BLOY on the firm by investigating actual customer spending.

Impact of environmental cost on the profitability of quoted manufacturing companies in Nigeria

Corporate involvement in environmental initiatives and reporting is essential for increasing and sustaining performance in a dynamic and changing environment. However, this involvement in environmental activities is not without costs implication. Hence, business managers tend to sacrifice engaging and reporting environmental initiatives for economic benefits. This study examined the impact of environmental costs on the profitability of quoted manufacturing companies from 2007 to 2017. The study used the ex-post facto research design. Twenty mentioned manufacturing companies were purposively drawn from the population of sixty manufacturing companies listed on the floor of the Nigerian Stock Exchange. The study variables were sourced from the annual reports and accounts as well as the stand-alone environmental information of the selected companies over eleven years from 2007-2017. The cost incurred on environmental initiatives to the community and training of employees on environmental concerns were used as proxies for environmental cost. At the same time, the DuPont return on equity was proxy for profitability. The findings from the panel random-effect regression analysis showed that asset use efficiency (F = 3.368, p = .01) and equity multiplier (F = 3.3301, p = .01) were significantly influenced by environmental cost; while operating efficiency (F= 0.5158, p = .72) was not significantly impacted by environmental cost at 5% level of significance. As such, in this study, the asset use efficiency and equity multiplier are the main drivers of a significant increase in the return on equity of quoted manufacturing companies in Nigeria from 2007 to 2017. The study, therefore, concluded that environmental costs significantly affect the profitability of quoted manufacturing companies in Nigeria.

Determinants of Portuguese banks' profitability: an update

In this study, we assess the main determinants of banks' profitability in Portugal over the period 2015–2018. We divide the factors that can influence bank profitability into several groups: management quality, credit quality, capital adequacy, liquidity (internal bank factors), and GDP growth (an external factor). The panel dataset is composed of annual report data for the 18 major banks operating in Portugal, representing about 98% of the Portuguese banking product. Profitability has been a persistent challenge for banks since the global financial crisis. Moreover, the Portuguese banking system had been facing several structural problems, which makes this topic particularly relevant. The profitability proxy used is the return on equity (ROE). The empirical strategy followed was pooled OLS. Variables relevant for explaining Portuguese banks' profitability are capital adequacy, liquidity and credit risk. As expected, the results show that capital adequacy (TIER 1) and credit quality (CVCT) have a negative and significant impact on banks' profitability, whereas liquidity (RAL) has a positive impact.

THE EFFECT OF FINANCIAL LEVERAGE ON PROFITABILITY: AN EMPIRICAL ANALYSIS OF RECAPITALIZED BANKS IN GHANA

In this study, we examine the impact of financial leverage on profitability of recapitalized banks in Ghana over the period 2008-2017. Based on the random effects and fixed effects estimation strategies, our findings reveal that leverage exerts a significant negative effect on banks’ profits regardless of the proxy of profitability. This provides empirical support for the pecking order theory. The results also establish that bank size positively and significantly enhances profitability. In light of our findings, we conclude that financial leverage is detrimental to banks' profit growth in Ghana. JEL Classification Codes: G21, G30.

THE EFFECT OF ERM, FIRM SIZE, LEVERAGE, PROFITABILITY AND DIVIDEND POLICY ON FIRM VALUE (EVIDENCE FROM FOOD & BEVERAGE SUB SECTOR COMPANIES LISTED IN IDX 2015-2019)

Enterprise risk management (ERM), firm size, leverage, profitability, and dividend policy is believed have an impact on firm value. However empirical evidence on thus impact is still considered scarce. The objectives of this study is to determine the effect of ERM, firm size, leverage, profitability, and dividend policy on firm value either simultaneously and partially. This study used purposive sampling technique. The samples used in this study is 14 companies listed and traded on the Indonesia Stock Exchange. The data analysis method used is multiple linier regression. The ERM variable in this study is measured with a dummy, Ln of total asset is used to measure the firm size. Debt to equity ratio used as a proxy of leverage, return on assets used as a proxy of profitability, dividend payout ratio as a proxy of dividend policy, then Tobin’s Q as a proxy of firm value. The results of this study indicate a simultaneous significant effect between the independent variables and firm value. Partial test shows that leverage and profitability have a significant positive effect on firm value. ERM & firm size have a negative coefficient and have no significant effect, while dividend policy has a positive coefficient but does not have a significant effect on firm value.

Effect of Liquidity Management on Banks Profitability

Liquidity management and profitability are very important issues in the growth and survival of businesses including financial institutions and the ability to handle trade-off between the two is a source of concern for financial managers. Hence, this research examines the relationship between liquidity management and bank performance using secondary data from the published annual reports of five (5) sampled Deposit Money Banks in Nigeria for a period of ten years (2009-2018). The proxies for liquidity management include loan to deposit ratio, loan to assets ratio, liquid ratio, while return on assets was the proxy for profitability. Data was analyzed using Auto Regressive Distributed Lag (ARDL) and results from the study showed that there is a negative and significant relationship between loan to deposit ratio with p-value 0.0021 and return on assets (ROA), a positive and significant relationship between loan to asset ratio with p-value 0.0005 and return on assets (ROA) and a positive and insignificant relationship between liquid ratio with p-value 0.1808 and return on assets (ROA). The study concludes that, there is a significant and positive relationship between liquidity management and profitability of banks in Nigeria. It is recommended that banks should always endeavour to administer their credits effectively by adhering strictly to rules on granting of credit.

The Determinants of Islamic and Conventional Banks Profitability in the GCC Region

The purpose of this study is to examine the factors affecting the profitability levels of commercial banks whether Islamic and non-Islamic over the period 2000-2018, to suggest ways to enhance the Islamic and non-Islamic banks profitability levels’ in the GCC countries. This research employed Bivariate analysis and panel regression in the investigation process. The study employed return on assets ratio as a proxy for banks profitability. The study found out that conventional banks are more efficient than Islamic banks in terms of profitability levels. There are substantial variances between both Islamic and conventional banks in terms of the determinants of banks' profitability. It is found that 89% of the Islamic bank’s profitability and 85% of conventional banks profitability influenced by bank size, market to book value, capital ratio, cash to assets, gross domestic product GDP, GDP growth, and inflation.

Corporate Social Responsibility (CSR) and Environmental Social Governance (ESG) – Disclosure of European Banks

In the European Union the goal of transition towards a carbon-neutral economy by 2050 is identified as a major aim of the European Commission. The integral role of the financial services sector in funding such investments and enhancing the (re-) direction and allocation of capital flows towards sustainable projects and investments is increasingly acknowledged. Besides the integration of ESG and CSR into the banks’ operations, it can serve and be utilized as risk management tools. This paper investigates the effectiveness of the EU Non-Financial Reporting Directive (2014/95/EU) with respect to the CSR disclosure quality in European banks from 2017-2019. After an overview of the EU’s path towards a sustainable financial sector from 2013 till present, the most important regulations will be assessed in detail, namely the Non-Financial Reporting Directive (2014/95/EU) and the Taxonomy Regulation on Sustainable Economic Activity (2020/852/EU). By constructing a multi-category CSR disclosure index to “translate” and quantify disclosed CSR information in the banks’ annual filings, a positive comparative development over the years is identified – indicating the general effectiveness of the directive. The construction of the disclosure index and the content analysis of the banks’ CSR disclosures is based on textual analysis. In order to not only analyse and evaluate the level of CSR disclosure in European banks from 2017-2019, but also to identify potential factors influencing its quality, the collection of multiple data inputs is necessary. The paper examines the association between three factors of the balance sheet and the P&L on their significance on the disclosure score. These factors are asset size in million euro (proxy for size), common equity tier 1 ratio (proxy for market discipline) as defined in the Basel III regulatory framework (proxy for market discipline) and pre-tax return on assets (proxy for profitability). Furthermore, the association of other non-balance sheet factors and their correlation on the disclosure score is examined which are listing status (listed or non-listed), country of the head-quarter, (external) auditor and bank´s CSR report type. Therefore, this adds detail to research, as existing majorly focus on how CSR-related information is disclosed and not to what extent and quality. This paper targets accountants, financial institutions, regulatory authorities, shareholders, investors and stakeholders in general who are affected by and interested in the overall CSR disclosure quality of European banks.

The determinants of banks’ capital adequacy ratio: Evidence from Western Balkan countries

This research aims to evaluate the impacts of liquidity, profitability, size, loans and capital structure on banks’ capital adequacy ratio (CAR) in the Western Balkan region using annual data from 103 commercial banks operated in Western Balkan countries for the period between 2010 and 2018. Panel data fixed effect method is employed. The data comprises of a total 51 observations for panel least squares. The empirical findings obtained panel data regression show that profitability proxies by the return on asset (ROA) have the largest impact on CAR among other financial ratios. In addition, liquidity and size have statistically significant positive effects in determining capital adequacy ratio for the banks in the region, unlike leverage ratio. However, the leverage ratio has a negative impact on the capital adequacy ratio. The policy implications of this study suggest that in order to accomplish requirements for capital adequacy expectations are to have good indicators in regard to performance, liquidity and size.

Pengaruh Profitabilitas dan Ukuran Perusahaan Terhadap Nilai Perusahaan Dengan Moderasi Kebijakan Dividen: Studi Pada Perusahaan Properti, Real Estate dan Konstruksi Bangunan Yang Terdaftar di Bursa Efek Indonesia Periode 2013-2017

This study purposed to determine the effect of profitability proxy with Earning Per Share (EPS) and firm size is proxied by logarithm natural of total assets to firm value which proxied by Price Book Value (PBV) and to find out whether dividend policy proxied by Dividend Payout Ratio (DPR) be moderateted the relationship of profitability and firm size against firm value. The population in this study were all the property, real estate and building construction companies sector listed on Indonesia Stock Exchange for 2013 -2017. The sample in this study were 9 companies out of 62 population obtained through purposive sampling method. Data analysis techniques used in this study was Moderated Regression Analysis (MRA). The results of this study is: (1) Profitability has positive and significant impact to firm value. (2) Firm size has positive impact but not significant to firm value. (3) Dividend policy are able to moderate the effect of profitability against firm value. (4) Dividend policy can not moderate the effect of firm size against firm value.

The Relationship Between Credit Risk Management and the Profitability of Banks in Ghana

Banks are faced with several types of risks. Prominent among these risks is credit risk. Profitability is key to the growth and survival of banks. This study therefore seeks to investigate the relationship that exists between credit risk and the profitability of banks in Ghana. To achieve this objective, eight banks were sampled out of a population of twenty nine (29) banks over a ten (10) year period from 2005 to 2014. A panel regression was run using Return on assets (dependent variable) as a proxy for profitability while non-performing loan ratio and net charge off to total loans and advances (independent variables) were used as proxies for credit risk. Other variables such as size, growth and debt ratio which influence profitability were controlled for in the model. Secondary data comprising annual reports of the selected banks was used for the study. The study established a positive and significant relationship between credit risk and the profitability of banks in Ghana. This implies that banks in Ghana enjoy profit in the midst of all the credit risk. The study also confirmed the findings of previous studies that, size and debt ratio are factors that influence profitability as there was a positive and significant relationship with profitability.

Working capital and financial performance in MENA region

PurposeThis paper aims to investigate the possible non-linear effect of net working capital (NWC) level on profitability for Middle East and North Africa (MENA) region listed companies. Furthermore, the study tests the possible interactive effect of cash levels on the relationship between NWC and profitability.Design/methodology/approachNWC level is the independent variable and profitability is the dependent variable using two proxies, return on assets (ROA) and returns on equity (ROE). Control variables are size, leverage, gross domestic product growth and sales revenue growth. The generalized method of moments was used to analyze the data of 134 consumer-goods listed firms in 12 MENA countries for the period 2013–2019.FindingsThe results demonstrate that NWC levels had a non-linear effect on profitability using ROA as a profitability proxy while results were insignificant using ROE as a profitability proxy. Furthermore, results show the absence of interactive effects between NWC, cash levels and both profitability proxies.Originality/valueThe study fills a gap in the working capital management (WCM) literature by providing new evidence on WCM’s non-linear effect of corporate performance in the MENA region emerging markets using the consumer-goods industry sample. The study contributes to the financial managers’ working capital optimization efforts in the MENA region by providing evidence on the usefulness of WC optimization efforts in the region from a financial performance point of view. According to the researchers’ knowledge, a few studies attempted to investigate this non-linear relationship for neither MENA region countries nor the consumer-goods industry.

Likidite Bankaların Kârlılığını Etkileyen Faktör mü? Ampirik Bir Çalışma

This study attempts to assess whether liquidity has any influence on the profitability of Turkish banks or not. We conduct the study using panel data collected from the website of the Association of Banks of Turkey. We select 10 biggest banks of Turkey based on asset size as on 31.12.2017 and used 10 years’ data ranging from 2008-2017. Loan Deposit, Deposit Asset, Liquid Asset to TA, Liquid Asset to Short- term Liability and Liquid Assets to Deposits and Non-Deposit Resources Ratio has been considered as a proxy of liquidity and average ROA and average ROE has been considered as a proxy of profitability. We analyze the data based on correlations analysis. We also run the Random effect regression model in our study with the support of E-Views 10. Our study reveals that Loan Deposit Ratio and Liquid Asset to Total Asset ratio do have a significant negative influence on both ROE and ROA. Deposit Asset Ratio does have a significant and negative influence on ROA but an insignificant and negative influence on ROE. Moreover, Liquid Asset to Deposit and Non-Deposit Resources Ratio shows a statistically significant but negative influence on ROE; in contrast an insignificant but positive impact on ROA.