The Effect of Firm’s Specific variables on firms' financial performance: A Global Sectorial Analysis
Download| Volume 17 Issue 2 2021 | |
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| Author(s): |
Haris Ali Khan (Corresponding Author)
Afaq Ali Khan
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| Abstract | This study investigated the impact of Corporate Diversification, investment, Capital structure, and dividend policies on a firm’s financial performance. The dependent variables taken for measuring the financial performance of the firms included ROE, ROA, and Tobin’s q. The independent variables were taken as investment, dividend as well as capital structure policies. Moreover, corporate diversification variables are represented by product diversification and geographic diversification. Other variables like the size of assets and the age of firms were taken as control. The hypothesis stated that divided policy, investment policy, and corporate diversification have a positive impact on a firm’s financial performances and capital structure has a negative impact on a firm’s financial performance. The data is collected from 10 multinational firms of different sectors. These firms are Bosch Pvt Ltd, Toyota Motors Ltd, Sanofi Aventis Pharmaceuticals Ltd, Pfizer Pharmaceuticals Ltd, Coca-Cola beverages Ltd, Pepsi Ltd, McDonald's Ltd, Nestle Ltd, Reckitt Benckiser Ltd, and Unilever Ltd. The firms’ data are collected from 25 countries. The countries include Argentina, Australia, Austria, Brazil, Canada, China, Ecuador, France, Germany, India, Indonesia, Italy, Japan, Malaysia, Mexico, New Zealand, Peru, Romania, Spain, Switzerland, Thailand, Turkey, UAE, UK, and the USA. The data is examined annually from 2015 to 2019 in panel form. The regression analysis, descriptive statistics, correlation matrix, and ANOVA methods are used for the estimation, interdependency, and correlation between the variables. The results are based on sectorial analysis as the firms belong to the consumer, pharmaceutical, automobile, food, and FMCG sectors. The consumer sector company includes Bosch Pvt Ltd, which results stated that the average ROE taken for the firm from 2015 to 2019 indicates that the company is increasing its profit generation without needing as much capital. The average ROA taken for the firm from 2015 to 2019 indicates that the company over time indicates the company is doing a good job of increasing its profits with each investment dollar it spends. The average Tobin’s q taken for the firm from 2015 to 2019 indicates that the firm is worth more than the cost of its assets and dividend policy and geographic diversification is making a positive significant impact on the firm’s financial performance. The automobile sector includes Toyota Motors Ltd. The results indicate that the average ROE, ROA, and Tobin’s q taken from 2015 to 2019 is increasing. Dividend policy, investment policy, and capital structure are making a positive significant impact on a firm’s financial performance. The Pharmaceutical sector includes Sanofi Aventis Pharmaceuticals Ltd and Pfizer Pharmaceuticals Ltd. The results stated that average ROE, ROA, and Tobin’s q are increasing from 2015 to 2019 resulting in profit generation. While the other control variables have an insignificant impact on a firm’s financial performance. The food sector includes Coca-Cola beverages Ltd, Pepsi Ltd, and McDonald's Ltd. The average ROE, ROA, and Tobin’s q taken from the year 2015 to 2019 from these companies indicates an increase in overall profits. Dividend policy, capital structure, and size have a positive significant impact on the firm’s financial performance. The FMCG sector includes Nestle Ltd, Reckitt Benckiser Ltd, and Unilever Ltd. The average ROE, ROA, and Tobin’s q is increasing from 2015 to 2019. Overall results indicated that dividend policy and geographic diversification have a positive significant impact on the financial performances of the firms. Whereas, capital structure has a negatively significant impact on firms' financial performance. The policy implications drawn from the results explained that geographic diversification improves firms’ financial performance. Firms need proper diversification-based management choices as unbalanced diversification can decrease in firm’s financial performance. Proper utilizing of the resources by the firms should lead to efficient diversification. The firms follow proper dividend policies as they are making a positive significant impact on the firm’s financial performance. The capital structure is negatively significant which means that the capital cost should be decreasing and the firm’s value and profitability are increasing. The firms should create an optimal capital structure to maximize wealth for investors. |
| Keywords | Firms specific, Financial performance, Corporate diversification, Financial structure, Control variables, Multinational firms, International countries, ROE, ROA, Tobin’s q |
| Year | 2021 |
| Volume | 17 |
| Issue | 2 |
| Type | Research paper, manuscript, article |
| Recognized by | Higher Education Commission of Pakistan, HEC | Category | "Y" | Journal Name | IBT Journal of Business Studies | Publisher Name | ILMA University | Jel Classification | DOI | - | ISSN no (E, Electronic) | 2409-6520 | ISSN no (P, Print) | 2414-8393 | Country | Pakistan | City | Karachi | Institution Type | University | Journal Type | Open Access | Reviews Type | Blind Peer Reviewed | Format | Paper Link | http://ibtjbs.ilmauniversity.edu.pk/journal/jbs/17.2/5.pdf |