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The effect of debt on corporate profitability Evidence from French service sector

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  • Mazen Kebewar

    ()
    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans, Faculty of Economics, Department of Statistics and Management Information Systems - University of Aleppo, Aleppo, Syria)

  • Ahmed Shah Syed Muhammad Noaman

    ()
    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans)

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    Abstract

    Current study aims to provide new empirical evidence on the impact of debt on corporate profitability. This impact can be explained by three essential theories: signaling theory, tax theory and the agency cost theory. Using panel data sample of 2240 French non listed companies of service sector during 1999-2006. By utilizing generalized method of moments (GMM) econometric technique on three measures of profitability ratio (PROF1, PROF2 and ROA), we show that debt ratio has no effect on corporate profitability, regardless of the size of company (VSEs, SMEs or LEs).

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    Paper provided by HAL in its series Working Papers with number halshs-00825178.

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    Date of creation: 05 Mar 2013
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    Handle: RePEc:hal:wpaper:halshs-00825178

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    Keywords: Debt; GMM; Panel data; Profitability.;

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    1. Majumdar, Sumit K & Chhibber, Pradeep, 1999. " Capital Structure and Performance: Evidence from a Transition Economy on an Aspect of Corporate Governance," Public Choice, Springer, Springer, vol. 98(3-4), pages 287-305, March.
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    8. Kebewar, mazen, 2012. "L’impact de l’endettement sur la profitabilité: Une étude empirique sur données françaises en panel
      [The impact of debt on profitability: An empirical study on French data panel]
      ," MPRA Paper 42579, University Library of Munich, Germany.
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    15. Christopher F. Baum & Dorothea Schaefer & Oleksandr Talavera, 2007. "The Effects of Short-Term Liabilities on Profitability: The Case of Germany," Money Macro and Finance (MMF) Research Group Conference 2006, Money Macro and Finance Research Group 61, Money Macro and Finance Research Group.
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