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Sources of financing, profitability and productivity: first evidence from matched firms
journal contribution
posted on 2023-06-08, 12:35 authored by Sushanta Mallick, Yong YangThis paper contributes to the literature on capital structure and firm performance. Using firm-level data covering over 11,000 firms from 47 countries over a recent period of 1997-2007, we address the effect of different sources of financing on corporate performance, employing a matching process, which allows an adequate `like-for-like’ comparison between high and low level of financing by firms. Robust to different matching estimators, the main findings are consistent with the theories of capital structure, in that firms with high debt-to-equity ratio tend to have lower returns to shareholders (profitability) and lower internal efficiency (productivity). The results become more robust when we separate the firms into advanced and emerging country-groups or countries with high/low levels of financial development. Given the lower level of leverage below 50% on average in emerging markets (or in countries with lower level of financial reforms), firms in these economies face lower risk of financial distress and thereby less adverse effect on firm profitability and productivity, relative to their counterparts in advanced economies. We also find that retained earnings and equity financing improve performance, while debt financing by firms particularly in the form of bank loans leads to lower performance, although not so in the case of debt raised through issuing bonds.
History
Publication status
- Published
Journal
Financial Markets, Institutions and InstrumentsISSN
0963-8008Publisher
Wiley-BlackwellExternal DOI
Issue
5Volume
20Page range
221-252Department affiliated with
- Business and Management Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2012-10-31Usage metrics
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