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The Impact of Bank Finance on the Performance of Automotive Industry

Mohammad Ali Dehghan Dehnavi (), Meysam Amiri () and Moazameh Shokrolah Tabar Aktij ()
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Mohammad Ali Dehghan Dehnavi: Assistant Professor of Finance and Banking, Allameh Tabatab'i University
Meysam Amiri: Assistant Professor of Finance and Banking, Allameh Tabatab'i University
Moazameh Shokrolah Tabar Aktij: M.A. in Islamic Banking, Allameh Tabatab'i University

Quarterly Journal of Applied Theories of Economics, 2017, vol. 4, issue 2, 27-48

Abstract: The optimal structure of capital and selection of the proper mixture of debt and capital is one of the most important strategic decisions in any firm that deeply affects its performance. Because of dominant role of banks in debt financing for corporates in Iran, this research is focused on the way that the performance of companies in automotive industry can be affected by debt creation via bank finance. The variable of bank finance has been measured with two indexes of ratio of loan to debt and the ratio of loan to equity of firm and variable of firms’ performance also has been measured with two groups of indexes as profitability and stability of profitability. Using the panel data model with the annual data of 26 automobile and auto parts manufacturers during the years of 2001-2014, a variety of models were evaluated. The results of study show that there is not any significant relationship between the loan to debt ratio of company and profitability indexes (except the index of return on equity); but there is a significant and negative relationship between the loan to equity ratio and profitability indexes. Based on the results, lending more to the companies not only do not improve their performance, but also have negative effects when the loan to equity ratio is in high level.

Keywords: Debt Leverage; Bank Finance; Automotive industry; Profitability; Stability of profitability (search for similar items in EconPapers)
JEL-codes: D22 G32 L25 (search for similar items in EconPapers)
Date: 2017
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