Leverage Ratio Research Articles

Capital Structure and Profitability of Public and Government Banks in Nepal

The study will examine how capital structure influences Nepalese public and government bank profitability. The study's statistical analysis utilizes secondary data. Descriptive and casual comparative analysis utilizing bank website data and correlations and multiple regression models for hypothesis testing was done using software. The study sampled 6 public banks and 2 governments from the population. The capital structure and profitability were examined as a cause-and-effect connection utilizing informal comparative study. This study uses NIM as a dependent variable and leverage ratio, bank size, liquidity ratio, and capital ratio as independent variables. Mean, standard deviation, correlation, multiple regression model, and hypothesis testing are statistical methods. Excel and SPSS assess such variables. Leverage Ratio boosts Public Bank NIM but not significantly. Bank Size negatively affects NIM somewhat. NIM and Liquidity Ratio are positively correlated. Public bank NIM is little affected by capital ratio. Leverage Ratio and bank size negatively affect Nepal's government banks' NIM. NIM positively and insignificantly impacts Liquidity Ratio. Capital ratio positively affects government bank NIM. Banks should recognise other variables' importance.

Analysis of Sustainable Growth Rate in Manufacturing and Construction Firms: Evidence from Selected Western Balkan Countries

This research’s primary goal is to examine the factors influencing organizations’ sustainable growth rates (SGR) between 2013 and 2022. A panel regression analysis was done to extensively assess the variables linked with SGR. The study included data from 92 manufacturing and construction companies in selected Western Balkan countries, resulting in a dataset of 1,012 observations. According to the study, asset efficiency and sales growth have a positive and significant impact, while leverage negatively impacts the SGR. These results are important to companies because they provide useful insights that can help them achieve their planned SGR. Management can make informed decisions to improve business performance by better understanding the impact of factors such as asset efficiency, leverage ratio, and sales growth on SGR. This informed decision-making not only ensures a healthy growth path but also helps avoid major financial problems. The study underlines that the findings serve as a significant tool for business management in long-term planning and strategy formulation. By providing insight into the company’s growth goals and prospects, this congruence also benefits numerous internal and external stakeholders. Additionally, it makes it possible to examine the company’s overall business situation more precisely and helps forecast its long-term performance.

Carbon Tax Policy, Stranded Assets and "Double Pillar" Regulation

The risk of a transition from climate policy has drawn widespread attention from central banks. By constructing a new Keynes dynamic stochastic general equilibrium model (NK-DSGE) including climate policy, asset quality and "two-pillar" policy, this paper studies the possible transition risk caused by carbon tax policy and analyzes the transition risk from the perspective of stranded assets. On this basis, the effect of the "dual-pillar" policy to deal with the transformation risk is further evaluated and the optimal policy combination is found through the comparative analysis of social welfare. Research shows that:(1)carbon tax policy has a significant emission reduction effect, but it may cause "stagflation" and lead to the "grounding" of carbon-intensive assets, causing a certain risk of transformation.(2)When the central bank deals with the risk of transformation, it should not only focus on the inflation target. At the same time, we should actively stimulate output, promote the development of the low-carbon sector, solve the mismatch between energy supply and demand, and address the root cause of inflation. When the central bank operates the price monetary policy, the central bank can reduce the risk of transformation and improve the operation efficiency through interest rate smoothing.(3)The macro-prudential policy of "brown punishment" can effectively alleviate the risk of transformation and improve social welfare. The macro-prudential policy of "green support" will not only promote the economic recovery, but also lead to the rising leverage ratio of banks in the short term, aggravating the financial risks faced by banks and causing the loss of social welfare.(4)An effective "two-pillar" policy mix is better to the single use of monetary policy tools in mitigating transition risks and improving social welfare.

Financial Performance of the Target Companies: Before and After Acquisitions

This study investigates the financial performance of target companies involved in mergers and acquisitions (M&As), aiming to reveal the dynamics affecting these organizations pre- and post-transaction. Utilizing a comprehensive dataset, we analyze the financial outcomes of M&A deals globally, spanning from 2010 to 2019. Employing various financial ratios, such as liquidity ratios, profitability measures, leverage ratios, asset management ratios, and market valuation metrics, this research provides an understanding of how M&As influence the financial performance of target companies. The key findings suggest that target companies experience significant changes in their financial ratios post-acquisition, with liquidity and profitability ratios showing marked fluctuations. The study shows that the method of payment (cash vs. non-cash) and the size of the deal significantly influence the post-acquisition financial performance of target companies. Cash-based and lower-valued deals are found to have a more positive impact on financial stability and growth metrics. This research contributes to the existing body of knowledge by highlighting the marginal effects of acquisition strategies on target companies’ financial performance. Our findings provide practical insights for potential acquirers, suggesting that the choice of acquisition method and deal size can significantly affect the financial outcomes of M&A activities.

Does corporate sustainability matter for the capital structure puzzle in OIC countries? Evidence from the COVID-19 pandemic

PurposeThis study assesses the impact of environmental, social and governance (ESG) certification on capital structure decisions considering the COVID-19 pandemic.Design/methodology/approachThe study utilizes the annual Asset-4 and Datastream data of Thomson Reuters Eikon for non-financial firms in member states of the Organization of Islamic Cooperation (OIC). Firm-fixed effects are used to avoid unobserved heterogeneity.FindingsFirms with higher corporate sustainability have a higher leverage ratio. The positive impact of ESG scores on book leverage became more significant during the COVID-19 pandemic. These findings imply that ESG activities might serve as a signalling tool, especially considering the pandemic: ESG activities mitigate financial constraints when they are most pronounced and impactful.Practical implicationsFirms should invest in ESG activities to alleviate financial constraints. Researchers and practitioners are encouraged to explore how ESG and macro-specific factors jointly affect debt financing. Policymakers should incentivize ESG investment to reduce agency conflicts. Regulators in OIC countries should support firms that are encountering obstacles in obtaining ESG certification.Originality/valueTo date, the role of ESG investing in capital structure policy by considering the recent pandemic has not been assessed in OIC countries.

Exploring the Drivers of Bank Risk in State-Owned Commercial Banks

This paper investigates the factors that form bank risks in Bangladeshi state-owned banks. As a representation of bank risk, non-performing loans have been considered the dependent variable for this study. The relevant data have been extracted from six state-owned banks in Bangladesh from 2013 to 2022. The final dataset consists of 60 firm-year observations. The ordinary least square (OLS) regression with robust standard errors model is utilized to find the relationship of bank risks with determinants like asset size, efficiency, liquidity, profitability, leverage ratio, capital adequacy ratio, and loan to asset ratio. The findings say that bank size and loan-to-asset ratio have a highly significant positive relationship with bank risk, whereas profitability, capital adequacy ratio, and bank efficiency have a significant negative association with bank risk. On the other hand, leverage and liquidity are negatively and positively correlated with no statistical significance. To check the study's robustness, another proxy of bank risk, loan loss provision has been used and the results are almost similar. State-owned banks operate in every economy with a different mindset than the general commercial banks. Hence, policymakers should take necessary initiatives based on this study to bring down the high bank risks in state-owned banks in Bangladesh.

Analisis Rasio Keuangan Sebagai Alat Untuk Pengukuran Kinerja Keuangan Menggunakan Rasio Likuiditas, Rasio Profitabilitas dan Rasio Solvabilitas Terhadap PT. Ace Hardware Indo

The purpose of this study is to examine how PT. Ace Hardware Indonesia Tbk, which is listedon the Indonesia Stock Exchange (IDX), used financial measures to assess its financialperformance from 2021 to 2023. PT ACE Hardware Indonesia Tbk is a retail business thatsells lifestyle and home goods. The financial ratio analysis approach was employed to collectquantitative data for the investigation. Liquidity ratios—current, quick, and cash—activityratios—fixed asset turnover, total asset turnover—leverage ratios—debt to total assets, debtto capital—and profitability ratios—gross profit margin, operating profit margin, net profitmargin, return on investment, and return on capital—are the financial ratios that are used.Additional sources of data were used in this research. approaches to collecting data withdocumentation studies, The income statements and balance sheets from 2021 to 2023 that areaccessible on the Indonesia Stock Exchange belong to the secondary data documents thathave been used. The research results showed that, with the company's ups and downsbetween 2021–2023, the liquidity and ratios of leverage had excellent financial results. Theactivity ratio shows a relatively good financial performance, showing how important it is forthe company to maximize the best posible use of its asset in order to fulfill its financial responsibilities. The profitability ratio shows the company's substandard financialperformance and the failure of management to effectively oversee assets and guaranteeongoing operations in order to produce predictable profits. However, the company couldoffer its products at a reduced price according to the gross profit margin. The study'sconclusion offers data regarding the importance of financial metrics for assessing thecompany's financial health to investors and other stakeholders. The suggestions center onimproving the management of assets and liabilities in order to fortify the business's financialposition moving forward

Pengaruh Profitabilitas Dan Leverage Terhadap Return Saham Pada Perusahaan Sub Sektor Perbankan Yang Terdaftar Di Bursa Efek Indonesia

This study aims to determine whether there is an effect of profitability and leverage on stockreturns. Changes in stock returns can be determined by the company's financial performanceprojected in the company's financial statements using profitability and leverage ratios. Theresearch method used in this study uses documentation techniques with a quantitativeapproach. This research was conducted at banking sub-sector companies listed on theIndonesia Stock Exchange (IDX) which were recorded during the 2019-2021 period. Thesample used in this study was purposive sampling, so that the sample in this study consisted of5 companies. The analysis used in this study is the classical assumption test, namely thenormality test, multicollinearity test, heteroscedasticity test, and autocorrelation test. To testthe hypothesis in this study using panel data regression test with the common effect modeltechnique, fixed effect model, and random effect model. Selection of the technique is done bydoing the chow test, hausman test, and lagrange multiplier test. Based on the research resultsshow that 1) There is a significant influence between profitability and stock returns. 2) Thereis a significant influence between leverage and stock returns. 3) There is an influence betweenprofitability and leverage on stock returns

A STUDY ON COMPARITIVE STATEMENT PRACTICES OF TO ARYAPURAM CO-OPERATIVE URBAN BANK LTD RAJAHMUNDRY-AP

The banking sector in any economy plays a significant role in its growth and development. This paper is based on financial performance analysis of two leading banks of India. This paper aims to evaluate financial performance of The Aryapuram co-operative bank ltd on the basis of accounting ratios and also to study the functioning of the Indian banking system . In this paper different ratios of both the banks are compared. Capital adequacy ratio, debt equity ratio, leverage ratios, profit and loss account ratios, net interest margin ratio, return on equity and other ratios are used to compare the performance of both the banks. This research is based on the data collected from financial statements of the banks. The performance of both the banks are compared from the year 2019 to 2023. It is observed that performance of The Aryapuram co-operative bank ltd is in terms of ratio analysis but also in terms of customer satisfaction.The present study aims to identify the financial strengths and weakness of the Indian public sector by establishing relationship between the items of the balance sheet and profit and loss account. It is used to compare the current financial performance with the last five years and to study the existing financial position of the bank.The data used in this is secondary data through annual report. The data used in this study comparative balance sheet, common sized balanced sheet, that the current liabilities is higher than the current assets every year and suggesting to increase the current assets. And this study is conducted in the Aryapuram co-operative bank Ltd., for the study of the performance of the bank of last five years which is satisfactory.

A Reversed Early Warning Methodology for Optimal Bank Profit Retention Recommendations

ABSTRACTThis study introduces a calibration method for the newest policy instrument in prudential supervision by endogenising profit retention targets via a reversed early warning system, depending on the supervisors' risk tolerance, the exposure to the economy, and the level of financial pressure. We model the likelihood of banking crises in EU jurisdictions within a medium‐term horizon using monthly frequency data to account for the increasing speed of financial shock developments amid the digital revolution, as the March 2023 distress episode indicated. Toward this target, we employ economic, monetary, and financial stress variables, banking size indicators, and leverage ratio. The early warning system is then run to calculate the capital buffer against a presumptive probability standard of the supervisory authority, given the financial stress level and the banking intermediation size. This approach would inform supervisors whether a profit retention recommendation is needed to enhance the shock absorption capacity of credit institutions to preserve banking stability given the existing economic, monetary, and financial conditions. Moreover, it can guide central bankers on their policy mix calibration, avoid frictions in the monetary transmission mechanism, and simultaneously accommodate price stability and financial stability goals. Furthermore, despite its macroprudential input, the regulators could replicate the methodology with microprudential data to derive an alternative but direct measure of capital buffers, complementing the current prudential regulatory approach.

Bond Finance and the Leverage Ratio

Unconstrained profit maximization permits a firm to make sizeable adjustments to the share of bond finance, investment, and the leverage ratio in response to changes in its economic environment. By contrast, a binding pledgeable income constraint limits movements in investment and the leverage ratio but permits some flexibility in the choice of bond versus loan finance. Due to the existence of distress costs of bond finance in the low payoff state, the share of bond finance remains low compared to more expensive loan finance under both constrained and unconstrained profit maximization.

Maximizing Firm Value: Analyzing Profitability and Leverage with Tax Avoidance Interventions

This study aims to analyze whether there is an effect between Profitability, Leverage, and tax avoidance toward firm value, either directly or indirectly. This research uses quantitative methods with partial least square analysis techniques. The data was obtained through the official website of the Indonesia Stock Exchange. This study found that 58 manufacturing companies were listed on the Indonesia Stock Exchange from 2016–to 2018. The results indicate that profitability and leverage do not affect tax avoidance and profitability. Leverage affects firm value, and tax avoidance does not mediate the effect of Profitability and Leverage toward firm value. Tax avoidance does not mediate the impact of leverage on firm value because the higher the leverage, the greater the funds provided by the creditor, and this makes investors careful about investing in companies with a high leverage ratio. This study implies that maximizing firm value does not necessarily require the company to engage in tax avoidance schemes since increasing profit will signal to the investor that the company has been managed effectively and ultimately maximizes firm value.

Bank Lending and Policy Interactions—A Comprehensive Assessment for the G20 Countries

ABSTRACTThis study examines the joint impact from supervisory requirements, monetary policies and rescue packages on the supply of bank loans. Evidence is obtained from conceptual considerations and the empirical investigation of G20 banks over the period 1995–2021. To prepare the analysis of interactions, we first address modelling concepts and consistently identify the effects on bank lending that come from each of the regulatory approaches in isolation. Second, we empirically assess the effects that result from the parallel application of policy actions. Short‐term liquidity ratios in combination with further variables mostly associate with positive interaction effects. In contrast, the joint assessment of long‐term liquidity ratios as well as leverage ratios with other policy actions usually provides negative effects. Overall, the results suggest that unconventional monetary policy and rescue actions can stimulate bank lending only after the institutions have restored their own stability. Interactions of policy actions matter, and both regulatory authorities and bank management should consider them.

Excessive External Borrowing in China: Evidence from a Nonparametric Threshold Regression Model with Fixed Effects

We investigated the excessive external financing problem in Chinese industrial firms by examining the potential threshold effect of the leverage ratio on the total factor productivity of firms. We hypothesized the existence of a turning point in leverage ratio at which the productivity of these firms is maximized, and this point may vary by firm ownership type. To test our hypotheses, we proposed a nonparametric panel threshold regression model. From a modeling perspective, our approach contributes to the literature by allowing the threshold variable to be endogenous, accounting for unobserved firm heterogeneities, and imposing no restrictions on the functional form of regression. We employed a two-step estimation procedure, first estimating the threshold using an extreme kernel estimator and then conducting local linear regression based on the estimated threshold. We obtained standard errors via bootstrapping and demonstrated the favorable numerical performance of our estimator through simulation studies. Consistent with our hypotheses, we found that excessive leverage relative to the identified turning point significantly restrains productivity growth. Additionally, the estimated turning point varies by ownership type, particularly in state-owned enterprises (SOEs), where leverage exceeding the threshold negatively impacts productivity. Consequently, regions with a higher concentration of SOEs experience stagnant productivity growth. Our results were statistically supported by nonparametric tests and remained consistent when using leverage growth rate as an alternative measure of external financing.

Interest-bearing capital and monetary policy: a heterogeneous agent Marxian model

PurposeIn terms of understanding the new issues emerging in the practice of monetary policies and how to evaluate the latest theories of monetary policy, this paper proposes referring to Das Kapital and developing a monetary policy theory grounded in Marxist political economy.Design/methodology/approachBased on the discussion of interest-bearing capital in Das Kapital and using a heterogeneous agent model, this paper tries to explain the determining mechanism of interest rate, leverage ratio, and asset price.FindingsThe research finds that if there are differences in the techniques possessed by capital, the resulting disparities in production efficiency will lead to differences in profit rates and further influence the functional choices of capital in the movement of social total capital. Thus, with the formation of lending relationships, interest rates, leverage ratios, and asset prices will be endogenously determined simultaneously. Moreover, as the degree of technological diffusion influences the industrial capitalists’ willingness to take loans as well as the level of profit rates, there may be counter-cyclical changes in the returns on productive investment and financial investment at different stages of the technology life cycle, contributing to diverting funds out of the real economy. Besides, this paper discusses the challenges, tools, and goals of monetary policy within the credit money system.Originality/valueClarify the intrinsic mechanism of the functional differentiation of capital determined by heterogeneous technologies and exogenous capital-labor relation and analyze the impact of capital differentiation on the economy.

Eviews Analysis: Investigating the Relationship Tunneling Incentive, Leverage Ratio, and Hedging in Indonesian Stock Exchange-Listed Firms

Manufacturing companies carry out many operational activities, so the more activities carried out, the more problems will be faced, especially problems related to the company's finances. So that the company experiences less than the maximum profit. For this reason, accurate financial management is needed to record and measure manufacturing company costs and profits so that the financial problems that occur in these manufacturing companies can be prevented or minimized through appropriate financial and operational controls. The method utilized in this study is a causal relationship. From the research results obtained using Eviews12 for manufacturing, Tunneling Incentives, Leverage, and Hedging can increase company value. It can also be concluded that Tunneling Incentive, as measured by Distributed Ownership Structure, has no significant effect on Leverage and Hedging. In contrast, Tunneling Incentive, as measured by Concentrated Ownership Structure, has a positive and significant effect on Leverage and Hedging. The managerial implications of this research are how important tunneling is for companies. The emergence of tunneling is due to agency problems between majority and minority shareholders. By holding tunneling by the controlling shareholder, there will be no dividend payment so that the controlling shareholder benefits the minority shareholder.

Do diversified M&As improve R&D activity? Evidence from Chinese listed companies

Using the sample merger and acquisition (M&A) data of China's A-share listed companies from 2007 to 2022, this study adopts the multiphase difference-in-differences (DID) methodology to examine the heterogeneity of diversified M&A activities and their effects on enterprise innovation efficiency. Findings indicate that diversified M&As hinder the advancement of firms’ innovation efficiency. Diversified M&As have a heterogeneous impact on enterprise innovation. Specifically, young enterprises, enterprises with limited cash flow, and enterprises in highly competitive industries experience a greater negative impact on innovation efficiency. Furthermore, long-term diversified operations with minimal business changes and a substantial decrease in leverage ratio harm innovation efficiency. These conclusions broaden the understanding of M&A's innovative effects and provide a practical foundation for domestic enterprises’ M&A decision-making.

PENGARUH RASIO PROFITABILITAS, LIKUIDITAS, DAN LEVERAGE TERHADAP FINANCIAL DISTRESS PADA PERUSAHAAN SUB INDUSTRI TEKSTIL YANG TERDAFTAR DI BURSA EFEK INDONESIA

Financial distress is a condition in which the company experiences financial difficulties before being in a state of bankruptcy. This study aims to obtain empirical evidence on the effect of profitability, liquidity, and leverage ratios on financial distress in textile subsector companies listed on the Indonesia Stock Exchange between 2017-2021. This study uses quantitative methods with descriptive and associative approaches and uses binary logistic regression analysis methods. The sample used amounted to 10 companies with an observation period of 5 years with 50 data as a research sample. Partially, the profitability ratio proxied by ROA and the liquidity ratio proxied by CR affect financial distress. While partially the leverage ratio proxied by DER does not affect financial distress. Simultaneously, financial distress for textile companies trading on Indonesia's stock exchange is affected by profitability ratios derived from ROA, liquidity ratios derived from CR, and leverage ratios derived from DER. Keywords: Profitability; Liquidity; Leverage; Financial Distress

Pengaruh Leverage dan Sales Growth Terhadap Financial Distress dengan Profitabilitas Sebagai Moderasi

The transportation sector in Indonesia is one of the important sectors supporting the national economy. This sector consists of a variety of companies and has great potential for development. This research is based on the problem of decreasing demand due to restrictions on mobility and economic activity due to the pandemic. Causing a decrease in revenue and profits for transportation companies which can increase the risk of financial distress. This research uses financial leverage ratio calculations with DER (Debt Equity Ratio) and Sales growth to determine the effect on financial distress calculated using ICR and the role of profitability with ROA (Return On Assets) as moderation. The method used in this research is descriptive methods with a quantitative approach. Research on the transportation sector listed on the BEI in 2022. The research population was 49 companies with a sample of 41 companies. The financial distress method used is to calculate the ICR ratio (Interest Coverage Ratio) which is symbolized by a dummy. Data analysis uses multiple linear analysis and Moderating Regression Analysis (MRA) with the SPSS 26 application. Based on the research and discussion that has been carried out, the research results can be concluded that leverage has an effect but is not significant on financial distress. Sales growth has an effect but is not significant on financial distress. Profitability is able to moderate the relationship between leverage and financial distress and sales growth with financial distress.

Revealing the secrets of working capital: A comparison between sharia-compliant and conventional firms

This research compares the performance of sharia-compliant (SC) and non–shariah-compliant (non-SC) firms by examining the impact of working capital on the return on assets, the return on equity, and the net profit margin. The dataset, based on the Dow Jones Islamic Market Index (DJIMI) standards, is divided by the leverage ratio and includes PSX-500 firms listed in the Pakistan Stock Exchange from 1996 to 2020. Our findings reveal that working capital has a significant and positive effect on all firm proxies, among which non-SC firms outperform SC firms because of their access to funds for business operations. SC firms face restrictions in obtaining funds from conventional banks. Our study has many implications. As liquidity injection is crucial for growth, policy makers should focus on developing novel credit instruments that are SC to address financing needs and boost business operations.