Capital Structure and Profitability in the Australian Service-Sector Firms: A Panel Data Analysis
Proceedings of World Business, Finance and Management Conference 14 - 15 December 2015
9 Pages Posted: 23 Apr 2019
Date Written: November 1, 2015
Abstract
The relationship between capital structure and firm performance has been examined in different countries for decades. The current study is aimed to extend this body of research to include the Australian service-sector. Using cross sectional panel data from 63 Australian listed companies over three years (2012-2014), this study examines how profitability or firm performance is affected by capital structure (debt/equity) choices. The current study is different from past studies in that growth of assets and revenues are used as two new control variables along with the other commonly used control variable, size. The panel data regression finds that short-term debt dominates debt choices of Australian service-sector companies. The finding is, to some extent, similar to trends in debt financed operations observed in companies in developed and developing countries. The finding is unexpected as the sectoral and institutional borrowing rules and regulations are different in Australia are different from the companies in other parts of the world.
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