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

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  • Kebewar, mazen
  • SHAH, Syed Muhammad Noaman Ahmed
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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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    File URL: http://mpra.ub.uni-muenchen.de/43304/
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    File URL: http://mpra.ub.uni-muenchen.de/54875/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43304.

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    Date of creation: 10 Dec 2012
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    Handle: RePEc:pra:mprapa:43304

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    Keywords: Debt; GMM; Panel data; Profitability;

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    1. Dimitris Margaritis & Maria Psillaki, 2007. "Capital Structure and Firm Efficiency," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(9-10), pages 1447-1469.
    2. Christopher F. Baum & Dorothea Schäfer & Oleksandr Talavera, 2006. "The Effects of Short-Term Liabilities on Profitability: A Comparison of German and US Firms," Boston College Working Papers in Economics 636, Boston College Department of Economics, revised 14 Apr 2007.
    3. Kebewar, Mazen, 2012. "La structure du capital et la profitabilité : Une étude empirique sur données françaises en panel," EconStor Preprints 73559, ZBW - German National Library of Economics.
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    5. Kebewar, Mazen, 2012. "L’impact de l’endettement sur la profitabilité. Une étude empirique sur données françaises en panel," EconStor Preprints 73692, ZBW - German National Library of Economics.
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    8. Christopher F. Baum & Dorothea Schäfer & Oleksandr Talavera, 2006. "The Effects of Short-Term Liabilities on Profitability: The Case of Germany," Discussion Papers of DIW Berlin 635, DIW Berlin, German Institute for Economic Research.
    9. Margaritis, Dimitris & Psillaki, Maria, 2010. "Capital structure, equity ownership and firm performance," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 621-632, March.
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    13. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
    14. Kebewar, mazen, 2012. "La structure du capital et la profitabilité Une étude empirique sur données de panel françaises," MPRA Paper 42446, University Library of Munich, Germany.
    15. Laurent Weill, 2008. "Leverage and Corporate Performance: Does Institutional Environment Matter?," Small Business Economics, Springer, vol. 30(3), pages 251-265, March.
    16. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3-4), pages 573-588.
    17. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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