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

Jagjeevan Kanoujiya, Pooja Jain, Souvik Banerjee, Rameesha Kalra, Shailesh Rastogi and Venkata Mrudula Bhimavarapu ()
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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

JRFM, 2023, vol. 16, issue 8, 1-20

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.

Keywords: debt ratio; firm value; net profit margin; sales; profitability (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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