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The Analysis of the Correlation Between the Sources of Funding, Performance and Risk Exposure of a Company

Author

Listed:
  • Mocanu Florina

    (Valahia University of Targoviste)

  • Istudor Ileana Iulia

    (Valahia University of Targoviste)

Abstract

The main question of this article is: is there any optimal financial structure, such as a combination of debts and equity that allows maximizing the value of economic asset? In order to highlight the impact of indebtedness on the risk and the performance of enterprises, we conducted a survey based on a sample of 32 companies working in the wholesale trade of building materials. Because they were generally small companies, with a relatively low market capitalization, we chose to opt for the appreciation of their performance by using a classic indicator, from the accountancy field, respectively the Return on Equity, while the risk was calculated by using the Debt-toassets ratio. The models that were made, focused on determining if there were or not any relationships between the Debt-to-equity ratio and the Return on Equity, and also the Debt-to-assets ratio, based on econometric methods and on E-views software of statistical analysis.

Suggested Citation

  • Mocanu Florina & Istudor Ileana Iulia, 2015. "The Analysis of the Correlation Between the Sources of Funding, Performance and Risk Exposure of a Company," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 827-830, May.
    • Handle: RePEc:ovi:oviste:v:xv:y:2015:i:1:p:827-830
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    More about this item

    Keywords

    performance; risk; financial structure; cost of capital; Debt-to-equity ratio;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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