Cash flow volatility and leverage: Evidence from non-financial Jordanian companies
- Author(s)
-
DOIhttp://dx.doi.org/10.21511/imfi.20(2).2023.24
-
Article InfoVolume 20 2023, Issue #2, pp. 286-294
- Cited by
- 372 Views
-
301 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study investigates the relationship between cash flow volatility and leverage in Jordanian firms. The research purpose is to investigate whether cash flow volatility affects a company’s capital structure in Jordan. Panel data analysis is used in this study for a sample of 72 shareholder non-financial companies in Jordan from 2009 to 2020. The findings show that cash flow volatility has a significant link with leverage, indicating that companies with higher cash flow volatility tend to use more debt financing. In addition, the study finds that firm size, return on assets, and tangibility are positively associated with leverage, while growth is not significantly related. The study suggests that firms in Jordan should take cash flow volatility in consideration when making capital structure decisions.
The study provides evidence that cash flow volatility is a vital determinant of leverage in Jordanian companies. The findings suggest that managers should consider the cash flow volatility effect on the capital structure alternatives of their firms.
Acknowledgment
I want to thank Amman Arab University for its support.
- Keywords
-
JEL Classification (Paper profile tab)G32, M41
-
References33
-
Tables4
-
Figures0
-
- Table 1. Descriptive measures
- Table 2. Pearson matrix
- Table 3. Spearman correlation matrix
- Table 4. The model
-
- Abdollahi, A., & Rezaei Pitenoei, Y. (2020). Surplus free cash flow and earnings management: The moderating role of auditor size. Advances in Mathematical Finance and Applications, 5(1), 81-93.
- Anagnostopoulou, S. C., & Tsekrekos, A. E. (2017). The effect of financial leverage on real and accrual-based earnings management. Accounting and Business Research, 47(2), 191-236.
- Antoniou, A., Guney, Y., & Paudyal, K. (2008). The determinants of corporate debt ownership structure: Evidence from market-based and bank-based economies. Managerial Finance, 34(12), 821-847.
- Barclay, M. J., & Smith, C. W. (1995). The maturity structure of corporate debt. Journal of Finance, 50(2), 609-631.
- Chong, B. U., & Kim, H. (2019). Capital structure volatility, financial vulnerability, and stock returns: Evidence from Korean firms. Finance Research Letters, 30, 318-326.
- DeAngelo, H., & Masulis, R. W. (1980). Optimal capital structure under corporate and personal taxation. Journal of Financial Economics, 8(1), 3-29.
- Deesomsak, R., Paudyal, K., & Pescetto, G. (2004). The determinants of capital structure: evidence from the Asia Pacific region. Journal of Multinational Financial Management, 14(4-5), 387-405.
- Deng, L., Li, S., Liao, M., & Wu, W. (2013). Dividends, investment and cash flow uncertainty: Evidence from China. International Review of Economics & Finance, 27, 112-124.
- Denis, D. J., Sibilkov, V. (2010, January). Financial Constraints, Investment, and the Value of Cash Holdings. The Review of Financial Studies, 23(1), 247-269.
- Foroozian, H., & Gaskari, R. (2016). Investigation the Effect of Cash Flow Volatility and Financial Leverage on Earnings Management in the Context of Listed Companies in Tehran Stock Companies in Tehran Stock. International Journal of Humanities and Cultural Studies, 2216-2224.
- Huang, Guihai. (2006). The determinants of capital structure: Evidence from China. China Economic Review, 17(1), 14-36.
- Huang, H. H., Kerstein, J., & Wang, C. (2018). The impact of climate risk on firm performance and financing choices: An international comparison. Journal of International Business Studies, 49, 633-656.
- Iqbal, A., Mulani, J., & Kabiraj, S. (2013). Leverage, Size of the Firm and Profitability: A Case of Pakistani Cement Industry. International Journal of Business Insights & Transformation, 7(1).
- Keefe, M. O., & Yaghoubi, M. (2015). The influence of cash flow volatility on capital structure and zero leverage by maturity (PHD Synopsis). Victoria University of Wellington, New Zealand.
- Keefe, M. O., & Yaghoubi, M. (2016). The influence of cash flow volatility on capital structure and the use of debt of different maturities. Journal of Corporate Finance, 38(1), 18-36.
- Kim, C., Park, J., Park, D., & Tian, G. (2022). Heterogeneous Effect of Uncertainty on Corporate Investment: Evidence from Listed Firms in the Republic of Korea. Asian Development Bank Economics Working Paper Series, 648.
- Kim, H. (2015). Debt, maturity, and corporate governance: Evidence from Korea. Emerging Markets Finance and Trade, 51(sup3), 3-19.
- Lakshmi, K. (2009). Ownership structure and capital structure: evidence from Indian firms. SSRN.
- Lee, H., & Moon, G. (2011). The long-run equity performance of zero-leverage firms. Managerial Finance, 37(10), 872-899.
- Lim, T. C. (2012). Determinants of capital structure empirical evidence from financial services listed firms in China. International Journal of Economics and Finance, 4(3), 191-203.
- Mateev, M., Poutziouris, P., & Ivanov, K. (2013). On the determinants of SME capital structure in Central and Eastern Europe: A dynamic panel analysis. Research in International Business and Finance, 27(1), 28-51.
- Memon, Z. A., Chen, Y., Tauni, M. Z., & Ali, H. (2018). The impact of cash flow volatility on firm leverage and debt maturity structure: evidence from China. China Finance Review International.
- Mohd-Ashhari, Z., & Faizal, D. R. (2018). Determinants and performance of cash holding: evidence from small business in Malaysia. International Journal of Economics, Management and Accounting, 26(2), 457-473.
- Sheikh, N. A., & Wang, Z. (2011). Determinants of capital structure: An empirical study of firms in manufacturing industry of Pakistan. Managerial Finance, 37(2), 117-133.
- Shubita, M. F. (2021). The ability of cash flows to predict the earning: Evidence from Jordan. Investment Management & Financial Innovations, 18(4), 36.
- Shyu, J. (2013). Ownership structure, capital structure, and performance of group affiliation: Evidence from Taiwanese group-affiliated firms. Managerial Finance, 39(4), 404-420.
- Stephan, A., Talavera, O., & Tsapin, A. (2011). Corporate debt maturity choice in emerging financial markets. The Quarterly Review of Economics and Finance, 51(2), 141-151.
- Strebulaev, I. A., & Yang, B. (2013). The mystery of zero-leverage firms. Journal of Financial Economics, 109(1), 1-23.
- Tayem, G. (2018). The determinants of debt maturity: the case of Jordan. Academy of Accounting and Financial Studies Journal, 22(1), 1-13.
- Terra, P. R. S. (2011). Determinants of corporate debt maturity in Latin America. European Business Review, 23(1), 45-70.
- Vo, X. V. (2017). Determinants of capital structure in emerging markets: Evidence from Vietnam. Research in International Business and Finance, 40, 105-113.
- Zhang, J., Zhao, Z., & Jian, W. (2020). Do cash flow imbalances facilitate leverage adjustments of Chinese listed firms? Evidence from a dynamic panel threshold model. Economic Modelling, 89, 201-214.
- Zheng, X., El Ghoul, S., Guedhami, O., & Kwok, C. C. (2012). National culture and corporate debt maturity. Journal of Banking & Finance, 36(2), 468-488.
-
Industrial development in Saudi Arabia: disparity in growth and development
Anis Ali
doi: http://dx.doi.org/10.21511/ppm.18(2).2020.03
Problems and Perspectives in Management Volume 18, 2020 Issue #2 pp. 23-35 Views: 3004 Downloads: 1021 TO CITE АНОТАЦІЯIndustrial development in any nation plays a vital role in the strengthening of the economy and employs human resources as per specifications and directly towards the mainstream of the nation. In Saudi Arabia, there was rapid industrialization for four decades. Some manufacturing industries performed well, while some internal and external business environment factors influenced the others’ performance. The study focuses on historical development, as well as recent trends of well-performing and poor-performing industries of Saudi Arabia. Small manufacturing industries in Saudi Arabia are underdeveloped and need more attention to attain sustainable and progressive growth rate in the form of the number of establishments to enjoy the potential. Manufacture of tobacco, computer, electronics and optics, pharmaceuticals and transport equipment are the deprived and underdeveloped industries of the manufacturing sector. There should be some easy credit schemes for the development of deprived or underdeveloped manufacturing industries. To attain sustainable growth and development of the manufacturing sector, a positive attitude of the government towards underdeveloped manufacturing industries, favorable labor laws, and entrepreneurial awareness, technical and financial assistance are necessary. The growth and development of the manufacturing sector of Saudi Arabia will be helpful in the attainment of goals of Vision 2030.
-
Why banks should consider ESG risk factors in bank lending?
Sarwar Uddin Ahmed ,
Samiul Parvez Ahmed ,
Ikramul Hasan
doi: http://dx.doi.org/10.21511/bbs.13(3).2018.07
Banks and Bank Systems Volume 13, 2018 Issue #3 pp. 71-80 Views: 2817 Downloads: 1132 TO CITE АНОТАЦІЯWhy banks should be concerned about incorporating environmental, social and governance (ESG) criteria in the lending process? What is the motivation? This study aims to find the motives for considering environmental, social and governance (ESG) criteria in bank lending process. A primary survey has been conducted to know the current status and motivation for incorporating ESG factors in investment decisions. Sample comprised 30 private commercial banks (PCBs) operating in Bangladesh. Data collected were analyzed with graphs, descriptive statistics, and regression analysis. Findings of the study indicate that banks are mostly considering basic environmental, social and governance factors set by regulators qualitatively. They are lagging behind in considering the advanced ESG criteria needed for sustainable and efficient credit risk management. Based on motivation for incorporating ESG factors, it was found that banks pioneering in incorporating ESG factors in lending decisions are compensated through better financial performance. Findings of the study are expected to encourage practitioners and policy-makers to take more pragmatic steps to incorporate ESG risk factors quantitatively in lending decision-making process.
-
Integrated reporting and financial performance of South African listed banks
Reon Matemane ,
Rozane Wentzel
doi: http://dx.doi.org/10.21511/bbs.14(2).2019.11
Banks and Bank Systems Volume 14, 2019 Issue #2 pp. 128-139 Views: 2769 Downloads: 540 TO CITE АНОТАЦІЯThe recent development of integrated reporting intends to address the limitations associated with corporate reporting practices. This paper aims to examine whether a statistically significant relationship exists between integrated reporting quality and financial performance. Secondary data was used, namely the integrated reports and annual financial statements of South African banks listed on the Johannesburg Stock Exchange (JSE) for 2010–2014. For the period 2005–2009, only the financial statements were used, since integrated reporting was not yet mandatory. The research design was longitudinal and it combined qualitative and quantitative methods. Descriptive statistics and Feasible Generalized Least Square (FGLS) were used to explore the relationships between financial performance and integrated reporting quality. The results indicate that there is a positive relationship between integrated reporting quality (IRQ) and earnings per share (EPS). However, there is no significant relationship between IRQ and Tobin’s q (Q-Ratio), IRQ and return on equity (ROE), IRQ and return on assets (ROA) as well as IRQ and economic value added (EVA). Moreover, there are no significant differences on the financial performance of the listed banks before and after the introduction of integrated reporting.
