This study investigates what kind of impact different leverage ratios have on firm performance measurements Return on Assets, Return on Equity and Tobin’s Q in selected firms listed on Nikkei 225 stock market (excluding Finance & Technology Sector). Furthermore, the influence of sector specific and possible control variables on capital structure (using long- & short-debt ratios) as well as firm performance will be analysed. The sample derive from 165 firms during the time period from 2014 to 2019 and analysed by using various Models multiple regression analysis.
Control variables Size and Growth show a clear positive effect on firm performance. In contrast, Tangibility has a negative impact on the model in which all companies are included, but has more positive coefficients in the model in which companies are divided into their industries. Additionally, this study suggests that the effect of leverage on firm performance differs among industries. Short- and long-term debt has positive impacts on different firm performance measurements by the Materials, Reals Estate, Energy and Communication Services Sector.
Table of Contents
1. INTRODUCTION
2. LITERATURE REVIEW
2.1 CAPITAL STRUCTURE FINANCE THEORIES
2.1.1 Trade-Off Theory
2.1.2 Pecking-Order Theory
2.1.3 Agency-Cost Theory
2.2 EFFECTS OF THE CAPITAL STRUCTURE ON FIRM PERFORMANCE
2.2.1 Impact of Trade-Off Theory
2.2.2 Impact of Pecking-Order Theory
2.2.3 Impact of Agency-Cost Theory
2.3 EMPIRICAL STUDIES ON THE INFLUENCE OF LEVERAGE ON FIRM PERFORMANCE
2.3.1 Negative Impact of Leverage on Firm Performance
2.3.2 Positive Impact of Leverage on Firm Performance
2.4 OTHER INFLUENCING FACTORS ON CAPITAL STRUCTURE
3. RESEARCH DESIGN
3.1 RESEARCH GAP
3.2 RESEARCH OBJECTIVES
3.3 RESEARCH QUESTIONS
4. RESEARCH METHODOLOGY
4.1 RESEARCH PHILOSOPHY
4.2 DATA COLLECTION
4.3 DATA ANALYSIS: REGRESSION MODELS AND PRACTICAL IMPLEMENTATION
5. EMPIRICAL FINDINGS AND ANALYSIS
5.1 DESCRIPTIVE STATISTICS OF DATA SET
5.2 CORRELATION RESULTS INDEPENDENT VARIABLES
5.3 REGRESSION RESULTS
5.3.1 Regression Results by Leverage Models
5.3.2 Regression Results by Industry
6. DISCUSSION
7. CONCLUSIONS
8. REFERENCES
APPENDIX A
Research Objectives and Themes
This study aims to examine the relationship between capital structure and firm performance for companies listed on the Nikkei 225 index. It specifically investigates the impact of various leverage ratios, such as short-term and long-term debt, on financial performance indicators like Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q, while controlling for firm-specific characteristics like size, growth, and tangibility across different industries.
- Analysis of major capital structure theories (Trade-Off, Pecking-Order, and Agency-Cost).
- Investigation of leverage's impact on firm performance within the Japanese market context.
- Evaluation of sector-specific variations in the relationship between debt and firm profitability.
- Quantitative assessment using multiple regression analysis on 165 firms from 2014 to 2019.
- Examination of control variables (Size, Growth, Tangibility) on capital structure decisions.
Excerpt from the Book
2.1 Capital Structure Finance Theories
Capital structure in a company is defined as a mix of long-term debt (LTD) and short-term debt (STD) and equity. Overall, it describes how firms fund their financing operations (Tuovila, 2019). According to Turner (2014), entities can maximize their value if they find an optimal combination of debt and equity based on risk and returns. In 1958, Modigliani & Miller published a study which states that level of leverage has no influence on firm value. Even with a 100% debt capital structure, firm performance should not be affected by high debt-equity ratio. On the other hand, Myers (1984) states that optimal capital structure arises from different results if optimal debt ratio is adjusted. High debt also reduces free cash flow. However, 5 years later, they corrected this research and included tax influence on optimal capital structure (Modigliani & Miller, 1963). Furthermore, Brealey & Myers (2018) conclude that the choice of capital structure is fundamentally a marketing problem. Having that in mind, similarity to the existing well known Trade-off theory is further explained in the following chapter.
Summary of Chapters
1. INTRODUCTION: Outlines the research problem regarding the impact of globalization on capital structure and introduces the motivation for studying the Nikkei 225.
2. LITERATURE REVIEW: Discusses theoretical frameworks including Trade-off, Pecking-order, and Agency-cost theories and reviews existing empirical studies on the relationship between leverage and performance.
3. RESEARCH DESIGN: Identifies the research gap concerning Japan, defines the objectives, and establishes the central research questions for the study.
4. RESEARCH METHODOLOGY: Details the quantitative research philosophy, data collection processes from the Eikon platform, and the specific regression models used.
5. EMPIRICAL FINDINGS AND ANALYSIS: Presents the descriptive statistics, correlation matrices, and the results of the multiple regression analysis broken down by leverage models and industry sectors.
6. DISCUSSION: Interprets the empirical findings, answers the research questions, and compares the study’s outcomes with existing literature.
7. CONCLUSIONS: Summarizes the study’s findings, suggests that high leverage generally leads to negative performance for the sample, and offers recommendations for future research.
Keywords
Capital structure, Firm performance, Japan, Nikkei 225, Leverage ratios, Trade-Off Theory, Pecking-Order Theory, Agency-Cost Theory, STD, LTD, TD, TDTC, Financial regression, Corporate finance.
Frequently Asked Questions
What is the primary focus of this research?
The research examines the impact of different capital structure ratios (such as short-term and long-term debt) on firm performance metrics like ROA, ROE, and Tobin’s Q for companies listed on the Nikkei 225 index.
What are the central theoretical frameworks used?
The study relies on three primary financial theories: the Trade-Off Theory, the Pecking-Order Theory, and the Agency-Cost Theory.
What is the main objective of this study?
The primary objective is to determine whether a positive or negative correlation exists between capital structure and firm performance, and to evaluate how these effects differ across various industry sectors in Japan.
Which research methodology is applied?
The study employs a quantitative explanatory research design, utilizing multiple regression analysis based on secondary numerical data obtained from the Eikon financial platform.
What does the main part of the thesis cover?
The main part covers the literature review of financial theories, the establishment of the research design, a detailed methodology section, and an extensive empirical analysis section presenting regression results for the overall sample and individual industries.
Which keywords characterize this work?
Key terms include Capital structure, Firm performance, Nikkei 225, Leverage ratios, Trade-Off Theory, Pecking-Order Theory, Agency-Cost Theory, and various debt-related metrics like STD, LTD, and TDTC.
How does this study contribute to existing research on Japanese firms?
It addresses a research gap by providing a comprehensive analysis of N225 companies from 2014 to 2019, an index that had not been previously scrutinized in this specific manner regarding the impact of leverage on firm performance.
What specific finding does the study highlight regarding the Real Estate sector?
The study notes that the Real Estate sector exhibits the largest long-term debt (LTD) proportion among all sectors, which is attributed to the high capital requirements for their long-term projects.
- Citar trabajo
- Tobias Burkhart (Autor), 2020, Capital Structure and Firm Performance. Evidence from Japan Nikkei 225, Múnich, GRIN Verlag, https://www.grin.com/document/1031166
