EFFECT OF CAPITAL STRUCTURE ON PROFITABILITY OF COMPANIES IN SOUTHEAST ASIA )BASED ON THRESHOLD PANEL REGRESSION APPROACH(

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NEMATI ALI; BAGHANI ALI; EMAMVERDI GHODRATOLLAH; DARABI ROYA; Norollahzadeh Norooz

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Journal: Financial Economics Year:2019 | Volume:13 | Issue:46 Page(s): 73-94

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Title

EFFECT OF CAPITAL STRUCTURE ON PROFITABILITY OF COMPANIES IN SOUTHEAST ASIA )BASED ON THRESHOLD PANEL REGRESSION APPROACH(

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Keywords

CAPITAL STRUCTURE;COMPOSITION OF FINANCIAL RESOURCES;THRESHOLD; JEL CLASSIFICATION:G11Q2

H11Q1

E22Q1

C35Q1

Abstract

The purpose of this research is to investigate the effect of capital structure on the profitability of companies in Southeast Asia based on threshold panel regression approach. In this study, 1474 companies from three countries of Southeast Asia (including Malaysia, Singapore, and Thailand) were investigated during the period of 2008-2017. In this research Hansen's threshold regression model was employed and the effects of debt ratio on different thresholds were studied, and two models were used to determine the optimal capital structure. In the first model, the relationship between independent variables (fixed assets, profitability, current ratio, size, non-debt tax shield, company growth and inflation) and the structure of the firm was investigated and analyzed. The results showed that there was a positive and meaningful relationship between fixed assets and size of the company and the capital structure, while profitability, current ratio, non-tax liability, company growth, and inflation showed negative relationship with the capital structure. In the second model, a threshold regression model was used to examine whether the financial leverage had an impact on the value of the companies in the countries of Southeast Asia. It was found that the F statistic for the effects of a single threshold with a F1 statistic was 161. 38 and p-value = 0. 000 is accepted at 95% confidence level. Furthermore, double threshold effects with a F2 statistic of 36. 32 and p-value = 0. 000 obtained using bootstrap replication at 95% confidence level was significant, thus in the case of companies from Southeast Asia the existence two thresholds was strongly confirmed. As a result, companies with a debt ratio in the one regime (DR1≤ 13%) have a significant effect on profitability and have a working value of 0. 082, and companies with debt ratio in the two regime (DR2≤ 33%> 13%) have a significant effect on profits and have a greater impact on the company's profitability than the one regime, with an effect of 0. 13. Finally, companies whose debt ratios are within the 3rd regime (33% DR3≥ ) there is a significant and negative effect on the profitability of the company, which is approximately-0. 11.

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APA: Copy

NEMATI, ALI, BAGHANI, ALI, EMAMVERDI, GHODRATOLLAH, DARABI, ROYA, & Norollahzadeh, Norooz. (2019). EFFECT OF CAPITAL STRUCTURE ON PROFITABILITY OF COMPANIES IN SOUTHEAST ASIA )BASED ON THRESHOLD PANEL REGRESSION APPROACH(. JOURNAL OF FINANCIAL ECONOMICS (FINANCIAL ECONOMICS AND DEVELOPMENT), 13(46 ), 73-94. SID. https://sid.ir/paper/229206/en

Vancouver: Copy

NEMATI ALI, BAGHANI ALI, EMAMVERDI GHODRATOLLAH, DARABI ROYA, Norollahzadeh Norooz. EFFECT OF CAPITAL STRUCTURE ON PROFITABILITY OF COMPANIES IN SOUTHEAST ASIA )BASED ON THRESHOLD PANEL REGRESSION APPROACH(. JOURNAL OF FINANCIAL ECONOMICS (FINANCIAL ECONOMICS AND DEVELOPMENT)[Internet]. 2019;13(46 ):73-94. Available from: https://sid.ir/paper/229206/en

IEEE: Copy

ALI NEMATI, ALI BAGHANI, GHODRATOLLAH EMAMVERDI, ROYA DARABI, and Norooz Norollahzadeh, “EFFECT OF CAPITAL STRUCTURE ON PROFITABILITY OF COMPANIES IN SOUTHEAST ASIA )BASED ON THRESHOLD PANEL REGRESSION APPROACH(,” JOURNAL OF FINANCIAL ECONOMICS (FINANCIAL ECONOMICS AND DEVELOPMENT), vol. 13, no. 46 , pp. 73–94, 2019, [Online]. Available: https://sid.ir/paper/229206/en

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