FACTORS AFFECTING RETURN ON ASSETS OF US TECHNOLOGY AND FINANCIAL CORPORATIONS
:
https://doi.org/10.9744/jmk.21.2.134-144
Keywords:
Profitability, US technology and financial firms, return on assetAbstract
The research studies the relationship between eight firm-specific factors on the profitability of U.S. technology and financial firms. The study used multiple linear panel regression models, namely, ordinary least squares (OLS), fixed effects (FE) and random effects (RE) models. Empirical findings show that return on equity ratio is negatively related with return on assets (ROA), while return on sales ratio has positive relationship with profitability for both technology and financial firms. On one hand, current ratio has a positive relationship with the profitability of the financial firms, while there is negative relationship for technology firms. Lastly, size has positive relationship with the profitability for technology firms. This study provides renewed perspectives in creating suitable strategies to controlling factors that maximizes profitability for both US publicly-listed technology and financial companies.References
Abor, J. (2007). Debt policy and performance of SMEs: Evidence from Ghanaian and South African firms. Journal of Risk Finance, 8(4), 364–379.
Aissa, S. B., & Goaied, M. (2016). Determinants of Tunisian hotel profitability: The role of mana-gerial efficiency. Tourism Management, 52, 478–487.
Akintoye, I. R. (2008). Effect of capital structure on firms’ performance: The Nigerian experience. European Journal of Economics, Finance and Administrative Sciences, 10(1), 233–243.
Anarfo, E. B. (2015). Determinants of capital structure of banks: Evidence from Sub-Sahara Africa. Asian Economic and Financial Review, 5(4), 624–640.
Babalola, Y., & Abiola, F. (2013). Financial ratio analysis of firms: A tool for decision making. International Journal of Management Sciences, 1(4), 132–137.
Badar, R., & Saeed, A. (2013). Impact of capital structure on performance empirical evidence from sugar sector of Pakistan. European Journal of Business and Management, 5(5), 78–86.
Barnes, P. (1987). The analysis and use of financial ratios: A review article. Journal of Business Finance & Accounting, 14(4), 449–461.
Batchimeg, B. (2017). Financial performance determinants of organizations: The case of Mongolian companies. Journal of Competitiveness, 9(3), 22–33.
Beaver, W. H. (1966). Financial ratios as predictors of failure. Journal of Accounting Research, 4, 71–111.
Bhutta, N. T., & Hasan, A. (2013). Impact of firm specific factors on profitability of firms in food sector. Open Journal of Accounting, 2, 19–25.
Bolek, M., & Wili'nski, W. (2012). The effect of liquidity on profitability of Polish construction sector companies. E-Finanse: Financial Internet Quarterly, 8(1), 38– 52.
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance & Accounting, 30(3‐4), 573–588.
Diaz, J. F. T., & Hindro, M. C. T. (2017). Factors affecting the profitability of Indonesian real estate publiclylisted companies. Asian Journal of Finance and Accounting, 9(1), 396–428.
Ebaid, I. E. (2009). The impact of capital-structure choice on firm performance: Empirical evidence from Egypt. Journal of Risk Finance, 10(5), 477–487.
Enqvist, J., Graham, M., & Nikkinen, J. (2014). The impact of working capital management on firm profitability in different business cycles: Evidence from Finland. Research in International Business and Finance, 32, 36–49.
Fabozzi, F. J. (2012). Encyclopedia of financial models. Volume 2. Hoboken, NJ: John Wiley & Sons, Inc.
Feng, Y., & Guo, Y. (2015). The relationship between capital structure and financial performance of China’s real estate listed companies. Journal of Finance and Economics, 3(4), 72–76.
García-Teruel, P. J., & Martínez-Solano, P. (2007). Effects of working capital management on sme profitability. International Journal of Managerial Finance, 3(2), 164–177.
Gill, A., Biger, N., & Mathur, N. (2011). The effect of capital structure on profitability: Evidence from the United States. International Journal of Management, 28(4), 3–15.
Gocmen, T., & Sahin, O. (2014). The determinants of bank capital structure and the global financial crisis: The case of Turkey. Journal of Applied Finance and Banking, 4(5), 55–67.
Habib, H., Khan, F., & Wazir, M. (2016). Impact of debt on profitability of firms: Evidence from non-financial sector of Pakistan. City University Research Journal, 6(01), 70–80.
Hall, M., & Weiss, L. (1967). Firm size and profitability. The Review of Economics and Statistics, 49, 319–331.
Hammes, K., & Chen, Y. (2004). Performance of the Swedish real estate sector 1998–2002. Working Papers in Economics 124, University of Gothen-burg, Department of Economics.
Handoo, A., & Sharma, K. (2014). A study on determinants of capital structure in India. IIMB Management Review, 26, 170–182.
Herciu, M., Ogrean, C., & Belascu, L. (2011). A Du Pont analysis of the 20 most profitable companies in the world. Presented in 2010 International Conference on Business and Economics Research.
Himmelberg, C. P., Hubbard, R. G., & Palia, D. (1999). Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of Financial Economics, 53(3), 353–384.
Irawan, A., & Faturohman, T. (2015). A study of liquidity and profitability relationship: evidence from Indonesian Capital Market. Paper presented at the Proceedings of 31st The IIER International Conference.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323–332.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial eco¬no-mics, 3(4), 305–360.
Jorgenson, D. W., Ho, M. S., & Samuels, J. D. (2011). Information technology and US productivity growth: Evidence from a prototype industry production account. Journal of Productivity Analysis, 36(2), 159–175.
Kebewar, M. (2012). The effect of debt on corporate profitability: Evidence from French service sec-tor. Brussels Economic Review, 56(1), 43–59.
Lazaridis, I., & Tryfonidis, D. (2006). Relationship between working capital management and pro-fitability of listed companies in the Athens stock exchange. Journal of Financial Management and Analysis, 19(1).
Lewellen, J. (2004). Predicting returns with financial ratios. Journal of Financial Economics, 74, 209–235.
Lun, Y. H. V., & Quaddus, M. A. (2011). Firm size and performance: A study on the use of elec-tronic commerce by container transport operators in Hong Kong. Expert Systems with Applications, 38(6), 7227–7234.
Margaritis, D., & Psillaki, M. (2007). Capital structure and firm efficiency. Journal of Business Finance & Accounting, 34(9‐10), 1447–1469.
Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. The American Economic Review, 53(3), 433–443.
Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574–592.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221.
Ofek, E. (1993). Capital structure and firm response to poor performance: An empirical analysis. Journal of Financial Economics, 34(1), 3–30.
Panigrahi, A. K. (2013). Relationship between inven-tory management and profitability: An empirical analysis of Indian cement companies. Asia Paci-fic Journal of Marketing & Management Review, 2(7), 107–120.
Ramadan, I. Z. (2013). Debtperformance relation. Evidence from Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(1), 323–331.
Rao, N. V., Al-Yahyaee, K. H. M., & Syed, L. A. (2007). Capital structure and financial performance: Evidence from Oman. Indian Journal of Economics and Business, 6(1).
Saleem, Q., & Rehman, R. U. (2011). Impacts of liquidity ratios on profitability. Interdisciplinary Journal of Research in Business, 1(7), 95–98.
Şamiloğlu, F., Őztop, A. O., & Kahraman, Y. E. (2017). The determinants of firm financial performance: Evidence from Istanbul Stock Exchange (BIST). IOSR Journal of Economics and Finance (IOSR–JEF), 8(6-1), 62–67.
San, O. T., & Heng, T. B. (2013). Factors affecting the profitability of Malaysian commercial banks. African Journal of Business Management, 7(8), 649–660.
Schwarz, G. E. (1978). Estimating the dimension of a model. Annals of Statistics, 6(2), 461–464.
Shubita, M. F., & Alsawalhah, J. M. (2012). The relationship between capital structure and pro-fitability. International Journal of Business and Social Science, 3(16), 104–112.
Stiroh, K. J. (2002). Information technology and the US productivity revival: What do the industry data say? American Economic Review, 92(5), 1559–1576.
Sufian, F., & Habibullah, M. S. (2009). Determinants of bank profitability in a developing economy: Empirical evidence from Bangladesh. Journal of Business Economics and Management, 10(3), 207–217.
Sukpanich, N. (2007). Intra-regional sales and performance. In A. M. Rugman (Ed.), Regional Aspects of Multinationality and Perfor-mance (Research in Global Strategic Management, Vol. 13) (pp. 317–336). Bingley: Emerald Group Publishing Limited.
Tangen, S. (2003). An overview of frequently used performance measures. Work study, 52(7), 347–354.
Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1–19.
Tong, T. T., & Diaz, J. F. (2017) Determinants of banks’ capital structure: Evidence from Viet¬na-mese commercial banks. Asian Journal of Fi-nance and Accounting, 9(1), 261–284.
Toy, N., Stonehill, A., Remmers, L., Wright, R., & Beekhuisen, T. (1974). A comparative international study of growth, profitability, and risk as determinants of corporate debt ratios in the manufacturing sector. Journal of Financial and Quantitative Analysis, 9(5), 875–886.
Vătavu, S. (2015). The impact of capital structure on financial performance in Romanian listed companies. Procedia Economics and Finance, 32, 1314–1322.
Whittington, G. (1980). Some basic properties of accounting ratios. Journal of Business Finance & Accounting, 7(2), 219–232.
Williamson, O. E. (1988). Corporate finance and corporate governance. The Journal of Finance, 43(3), 567–591.
Downloads
Published
How to Cite
Issue
Section
License
Authors who publish on this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
