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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). -- L'étude actuelle a pour but de fournir une nouvelle évidence empirique sur l'impact de dette sur la profitabilité d'entreprise. Cet impact peut être expliqué par trois théories essentielles: la théorie du signal, l’influence de la fiscalité et la théorie de l’agence. En utilisant un échantillon d’un panel de 2240 entreprises Françaises non cotées du secteur des services au cours de la période 1999-2006. En utilisant la méthode des moments généralisée (GMM) sur trois mesures de ratio de rentabilité (PROF1, PROF2 et ROA), nous montrons que le ratio de la dette n'a aucun effet sur la profitabilité des entreprises, quelle que soit la taille de l'entreprise (TPE, PME ou ETI).

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    Bibliographic Info

    Paper provided by ZBW - German National Library of Economics in its series EconStor Preprints with number 73556.

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    Date of creation: Jan 2013
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    Handle: RePEc:zbw:esprep:73556

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    Keywords: Debt; GMM; Panel data; Profitability;

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    1. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
    2. Laurent Weill, 2008. "Leverage and Corporate Performance: Does Institutional Environment Matter?," Small Business Economics, Springer, Springer, vol. 30(3), pages 251-265, March.
    3. Mazen Kebewar, 2012. "L'Impact De L'Endettement Sur La Profitabilité Une Étude Empirique Sur Données Françaises En Panel," Working Papers halshs-00749685, HAL.
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    15. Paulo J. Ma��s Nunes & Zélia M. Serrasqueiro & Tiago N. Sequeira, 2007. "Profitability in Portuguese service industries: a panel data approach," The Service Industries Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 29(5), pages 693-707, May.
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