Impact of Debt Maturity on Firm Performance Evidence from Pakistan (original) (raw)
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Sustainable Business and Society in Emerging Economies, 2021
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.
The determinants of corporate debt maturity structure: A case study of Pakistan
AFRICAN JOURNAL OF BUSINESS MANAGEMENT, 2012
This paper investigates the determinants of the maturity structure of Czech corporate debt. A theoretical section provides an overview of contemporary theories on corporate debt maturity structure. An empirical section describes an econometric model that shows that long-term debt increases with company size and leverage and asset maturity. The impact of growth options, collateralizable assets, corporate-tax rate, and company-level volatility proves statistically insignificant. Finally, the paper discusses the limitations of the results in terms of data, variables, and determinants.
The study was intented to identify the determinants of the debt maturity structure of listed firms in Bombay Stock Exchange 500 index. For the analysis we have taken 321 firms during the period 2002-2011, comprising of a panel model with fixed effects. We also used GMM (1991) and GMM (1998) estimates of our analysis. The result of robustness tests confirms that past year debt maturity, leverage and growth opportunities are directly determined the debt maturity of Indian firms. Liquidity, effective tax and rate prime lending rate are negatively determining the debt maturity of Indian companies.
Debt and Profitability An Empirical Analysis of Listed Firms of Pakistan
Abstract: This study seeks to investigate the issues related to financing decision and the profitability of the listed firms at the Karachi Stock Exchange (KSE). By performing this investigation we try to find out that is Pakistani listed firms at KSE follow any capital structure theory during the period 2000-2010. The study is based on the panel data of 40 non financial listed companies at Karachi Stock Exchange for the period of 2000-2010. Comprehensive descriptive analysis was conducted to find out mean, median and standard deviation for better understanding of readers. OLS Regression analysis is used to analyze the relationship between profitability and financing by debts. The relationship is found for short term debts, long term debts and total debts. Size and growth are used as control variables in the study. The results regarding leverage and profitability reveal that there is an inverse relationship between the use of debt in capital structure and profitability. The over usage of debt in the capital structure is responsible for these results. Size and sales growth has positive relationship with the profitability. This study investigates the issues relating to the capital structure and firms performance in terms of profitability. All firms need operating capital to support their sales. To acquire operating capital, funds must be raised in the form of a combination of equity and debt. For any business organization the financing decision is very critical because of the need to maximize the profit to the financing constituencies, and also for the survival of firm in its competitive environment with that optimal capital structure. The choice among the best proportion of debt and equity can affect the value of the firm, as well as the rate of return. The most of the factors that are used in this research study is based on previous researches to analyze the relationship among debt financing and profitability of the firms. Basically, we selected the attributes identified by Abor (2005) and planned to test few other variables that are used in various studies. But, there is lack of financial data in the selected sample space and therefore, we include just two additional variable is this research study. This research identified need, to examine use of different capital structures used by the listed companies and its impact on profitability capabilities of these companies. This study is based on the data collected from the sample of 40 listed companies of Karachi stock Exchange (KSE). Keywords: Capital Structure, Profitability, Debt, Equity, Return on Assets, Leverage, Growth, Size
Afro-Asian J. of Finance and Accounting, 2020
This paper aims to examine the (nonlinear) link between debt maturity structure and firm performance in five Southeast Asian emerging markets. This nonlinearity could be the cause of the inconsistency in the extant findings on the impact of debt maturity on firm performance. Our research provides evidence supporting a nonlinear relationship between debt maturity structure and firm performance. The results further show that financially constrained firms are more susceptible to liquidity risk when constrained firms are heavily financed by short-term debt, while when these firms employ much long-term debt the agency cost of debt becomes more worrisome. Therefore, compared to unconstrained peers, financially constrained firms are more likely to benefit from the use of long-term debt at short debt maturity structure, but are more prone to be suffering from long-term debt use when the latter firms are already at long debt maturity structure.
IMPACT OF DEBT ON PROFITABILITY OF FIRMS; EVIDENCE FROM NON-FINANCIAL SECTOR OF PAKISTAN
This study focuseson expanding the existing empirical knowledge on the impact of debt on profitability of companies. Different sets of variables havebeen used to investigate the relationship between debt and profitability of firms with empirical evidence from the non-financial sector of Pakistan; using panel data of 10 years, ranging between [2003][2004][2005][2006][2007][2008][2009][2010][2011][2012]. Return on Assets is used as the profitability measure and is the dependent variable, whereas; Short Term Debt to Asset, Long Term Debt to Asset, Total Debt to Asset are used as independent variables, while Size, Sales Growth, and Growth Opportunity are used as control variables. Random effect regression analysis is used to find out the impact of debt on profitability. Results indicate a significant but negative relationship between short term debt, long term debt, total debt, and return on assets.
The Determinants of Corporate Debt Maturity for NSE-Listed Corporates
FIIB Business Review
The maturity structure of corporate debt is one of the significant financing choices that a firm must make simultaneously while deciding how to finance its operational and investment decisions. Even though the capital structure is one of the scrutinized topics of interest in the area of corporate finance literature, there are scarce studies investigating corporate debt maturity—even less so in the context of emerging markets. The choice of a suitable debt maturity structure is extremely relevant for firms as it can enable them to avoid mismatch by aligning assets in line with liabilities, address agency related problems, sidestep the ill effects of cost of capital and signal about the firms’ earning quality and value. The study investigates the firm-specific and macroeconomic determinants that are significant for a debt maturity structure of Indian corporate firms. A sample of 29 non-financial firms listed on the National Stock Exchange during the period 2008–2016 was taken to test ...
Effect of Debt Financing on Firm Performance: A Study on Non-Financial Sector of Pakistan
This study attempts to examine the association of different debt financing on firm's performance in 14 sectors of Pakistan. Secondary data is collected about 14 different sectors in Pakistan Stock Exchange, for the time period of 9 years (2006 to 2014). The results of the study indicated that debt financing have negative but also significant impact on firm performance in Pakistan. This study findings recommends that companies should more rely on their internal source of finance because it is the cheap and reliable source of finance in Pakistani context.
The debt maturity of listed firms in Pakistan has shown significant decline over the last decade. In this study, we investigate changes in both the demand-side and supply-side factors that are responsible for this decline. For this purpose, we study 364 firms for a period of seventeen years, i.e. 1996 to 2012. Analysis of the demand-side factors reveals that the decrease in debt maturity is significantly explained by agency and maturity matching theories while information asymmetry theory has limited explanatory power. Further, analysis of the supply-side factors such as loans granted to private sector explains much of the reason of decrease in debt maturity structures. Overall, both demand and supply-side factors are responsible for the declining debt-maturity structures of Pakistani firms; however, much of the decrease is attributed to supply-side rather than firms' own characteristics or demand-side factors.