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Impact of Leverage on Valuation of Non-Financial Firms in India under Profitability’s Moderating Effect: Evidence in Scenarios Applying Quantile Regression

Author

Listed:
  • Jagjeevan Kanoujiya

    (Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India)

  • Pooja Jain

    (Amity Business School, Amity University, Gwalior 474020, India)

  • Souvik Banerjee

    (Management Development Institute Murshidabad, Murshidabad 742235, India)

  • Rameesha Kalra

    (School of Business and Management, CHRIST (Deemed to be University), Bangalore 560029, India)

  • Shailesh Rastogi

    (Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India)

  • Venkata Mrudula Bhimavarapu

    (Symbiosis School of Banking and Finance, Symbiosis International (Deemed University), Pune 412115, India)

Abstract

The firm’s valuation (FV) is the key element for all stakeholders, particularly the investors, for their investment decisions. The main impetus of this research is to estimate the effects of the debt ratio (DR, i.e., leverage) on the FV (i.e., assets and market capitalisation) of the non-financial firms listed in India. The quantile panel data regression (QPDR) on the secondary data of 76 non-financial BSE-100 listed firms in India is employed. This study also checks the effect of the net profit margin (NPM) as profitability on the association between DR and FV. The QPDR estimates result in multiple quantiles and provide evidence in scenarios. The findings reveal a positive relationship of DR to assets only in higher quantiles, i.e., 90%ile), and a negative association of DR is found with a market capitalisation in all quantiles. Under the interaction effect, profitability (NPM) does not affect the association of DR with assets but negatively affects the association of debt ratio with market capitalisation in the middle (50%) quantile. The findings indicate that leverage (DR) affects a firm’s value. The study’s outcomes are helpful to all stakeholders, particularly investors, to realise the leverage (DR) as a critical indicator of FV before making any investment decisions. Managers should also consider lower debt ratios for better firm value. The present analysis is original and holds novelty in the form of the moderating role of the net profit margin, i.e., the profitability of the firm between DR and FV in the non-financial firm in India. To the best of our knowledge, no such studies have been performed to look for the association of the debt ratio with a firm’s value under the effect of profitability in different quantiles using quantile regression.

Suggested Citation

  • Jagjeevan Kanoujiya & Pooja Jain & Souvik Banerjee & Rameesha Kalra & Shailesh Rastogi & Venkata Mrudula Bhimavarapu, 2023. "Impact of Leverage on Valuation of Non-Financial Firms in India under Profitability’s Moderating Effect: Evidence in Scenarios Applying Quantile Regression," JRFM, MDPI, vol. 16(8), pages 1-20, August.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:8:p:366-:d:1214564
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    References listed on IDEAS

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    Cited by:

    1. Sherwood Lane Lambert & Kevin Krieger & Nathan Mauck, 2024. "Predicting Operating Income via a Generalized Operating-Leverage Model," IJFS, MDPI, vol. 12(1), pages 1-19, January.

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