Exploring the impact of cash flow, company size, and debt on financial performance in corporations
-
DOIhttp://dx.doi.org/10.21511/imfi.20(3).2023.22
-
Article InfoVolume 20 2023, Issue #3, pp. 264-272
- 648 Views
-
221 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This paper investigates the impact of operating cash flows, company size, and debt (including both cash and operating flows) on the financial performance of Kosovo’s ten most prominent publicly traded companies. Various analytical techniques were employed for hypothesis testing, including OLS linear regression analysis, correlation analysis between variables, and statistical tests such as the T-test and Ratio test. The financial performance analysis involves utilizing Return on Assets (ROA) as the dependent variable, while the independent variables encompass operating cash flows (CFO), firm size, and financial leverage.
The study’s findings reveal noteworthy insights. Although cash flow (p > 0.05) is not observed to have a significant impact, larger company size (p < 0.01) is associated with diminished financial performance. Conversely, higher debt leverage (p < 0.01) is linked to enhanced financial performance. Consequently, the results underscore the significant economic implications that firm size and financial leverage hold for the financial performance of corporations in Kosovo, as indicated by ROA.
The observation that firms size plays a substantial role in financial performance aligns cohesively with established economic theory. As companies expand, they often encounter challenges related to efficient resource management.
- Keywords
-
JEL Classification (Paper profile tab)H63, G30, L25, G17
-
References30
-
Tables4
-
Figures0
-
- Table 1. Summary statistics for the variables integrated into the econometric model
- Table 2. Normality test
- Table 3. Summary of regression coefficients
- Table 4. Hypotheses testing results
-
- Al-Fasfus, F. S. (2020). Impact of free cash flows on dividend pay-out in Jordanian Banks. Asian Economic and Financial Review, 10(5), 547.
- Alfonso, M., & Castrillón, G. (2021). The concept of corporate governance. Revista Científica “Visión de Futuro”, 25(2), 178-194.
- Ali, M. A., Kalim, U., Raza, H., Ali, H. A., Rehman, M., & Ullah, M. I. (2017). The relationship between ROA, ROE, ROCE, and EPS ratios with break-up values of shares of Karachi-Pakistan fuel and energy listed companies. Journal of Finance and Accounting, 5(3), 115-122.
- Atieh, S. H. (2014). Liquidity analysis using cash flow ratios as compared to traditional ratios in the pharmaceutical sector in Jordan. International Journal of Financial Research, 5(3), 146-158.
- Beasley, M. S., Carcello, J. V., & Hermanson, D. R. (1999). Fraudulent Financial Reporting: 1987–1997. New York, NY: COSO.
- Bernardin, D. E., & Tifani, T. (2019). Financial distress predicted by cash flow and leverage with capital intensity as moderating. Jurnal Apresiasi Ekonomi, 7(1), 18-29.
- Bishop, W. G., III, Hermanson, D. R., Lapides, P. D., & Rittenberg, L. E. (2000). The year of the audit committee. Internal Auditor, 57, 46-51.
- Burke, Q. L., & Wieland, M. M. (2017). Value relevance of banks’ cash flows from operations. Advances in Accounting, 39, 60-78.
- CMA. (2014). Transparency and disclosure: Statement of the CMA’s policy and approach. Kenya Gazette Notice, 369, 122-128.
- Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC. Contemporary Accounting Research, 13(l), 1-36.
- Denis, D., & McConnell, J. (2003). International Corporate Governance. Journal of Financial and Quantitative Analysis, 38(1), 1-36.
- Dirman, A. (2020). Financial distress: The impacts of profitability, liquidity, leverage, firm size, and free cash flow. International Journal of Business, Economics, and Law, 22(1), 17-25.
- Fahlevi, M. R., & Marlinah, A. (2018). The Influence of liquidity capital structure, profitability, and cash flows on the company’s financial distress. Jurnal Bisnis dan Akuntansi, 20(1), 59-68.
- Guizani, M., & Kouki, M. (2012). Ownership-control discrepancy and dividend policy: Evidence from Tunisia. International Business Research, 5(1), 127.
- Hery. (2017). Accounting Theory Conceptual Approach and Analysis. Jakarta: PT Grasindo.
- IFC, I. F. (2018). Indonesia Corporate Governance Manual, 2nd Edition. International Finance Corporation, Washington, District of Columbia.
- Kaunang, J. M. (2013). Cash Flow Statement Analysis as a Measuring Tool to Assess Performance at PT. Pegadaian (Persero) East Manado Branch. EMBA Journal, 1(3), 455-464.
- Kroes, J. S., & Subramanyam, R. (2012). Operational compliance levers, environmental performance, and firm performance under cap and trade regulation. Journal of Manufacturing & Service Operations Management, 14(2), 186-201.
- Makni, I., Kolsi, M. C., & Affes, H. (2012). The impact of corporate governance mechanisms on audit quality: evidence from Tunisia. Journal of Corporate Governance, 11(3), 48.
- Mang’unyi, E. E. (2011). Ownership Structure and Corporate Governance and Its Effects on Performance: A Case of Selected Banks in Kenya. International Journal of Business Administration, 2(3), 1-17.
- Mukadar, V. S., Wawo, A. B., & Utu, L. (2021). The Effects of Operating Cash Flow, Funding and Investment on Financial Performance of Mining Companies in Metal and Other Mineral Sub-sector Listed on Indonesia Stock Exchange. International Journal of Scientific & Engineering Research, 12(7), 603-606.
- Nguyen, D. D., & Nguyen, A. H. (2020). The impact of cash flow statement on the lending decision of commercial banks: Evidence from Vietnam. The Journal of Asian Finance, Economics, and Business, 7(6), 85-93.
- Nguyen, D. V., Dang, D. Q., Pham, G. H., & Do, D. K. (2020). Influence of overconfidence and cash flow on investment in Vietnam. The Journal of Asian Finance, Economics, and Business, 7(2), 99-106.
- Pincus, K., Rusbarsky, M., & Wong., J. (1989). Voluntary formation of audit committees among NASDAQ firms. Journal of Accounting and Public Policy, 8, 239-265.
- Rahmawati, R., & Narsa, I. M. (2020). Operating cash flow, profitability, liquidity, leverage, and dividend policy. International Journal of Innovation, Creativity and Change, 11(9), 121-148.
- Ramsay, I. (2001). Ramsay Report: Independence of Australian Company Auditors: Review of Current Australian Requirements and Proposals for Reform. Langton Crescent: Corporate Governance and Accounting Policy Division, Department of the Treasury.
- Sayari, N., & Mugan, C. S. (2017). Industry-specific financial distress modelling. BRQ Business Research Quarterly, 20(1), 45-62.
- Tricker, A. (2009). Essentials for Board Directors: An A-Z Guide. New York: Bloomberg Press.
- Wanyama, D. W., & Olweny, T. (2013). Effects of Corporate Governance on Financial Performance of Listed Insurance Firms in Kenya. Public Policy and Administration Research, 3(4), 104-120.
- Wild, J. J. (1996, April). The Audit Committee and Earnings Quality. Journal of Accounting, Auditing and Finance, 11(2), 247-276.