Non-linearity in debt and return relationship: evidence from dynamic panel threshold method
Background and objective: Moderate debt usage increases returns during economic boom, but high debt could decreases returns during economic recession. This study examines if there is a threshold debt level in the debt-returns relationship. Methodology: This study applies dynamic panel-threshold meth...
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| Format: | Article |
| Language: | English |
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Asian Network for Scientific Information
2016
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| Online Access: | http://psasir.upm.edu.my/id/eprint/53393/ http://psasir.upm.edu.my/id/eprint/53393/1/Non-linearity%20in%20debt%20and%20return%20relationship.pdf |
| _version_ | 1848852271081717760 |
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| author | Matemilola, Bolaji Tunde Amin Noordin, Bany Ariffin Wan Ngah, Wan Azman Saini Md Nasir, Annuar |
| author_facet | Matemilola, Bolaji Tunde Amin Noordin, Bany Ariffin Wan Ngah, Wan Azman Saini Md Nasir, Annuar |
| author_sort | Matemilola, Bolaji Tunde |
| building | UPM Institutional Repository |
| collection | Online Access |
| description | Background and objective: Moderate debt usage increases returns during economic boom, but high debt could decreases returns during economic recession. This study examines if there is a threshold debt level in the debt-returns relationship. Methodology: This study applies dynamic panel-threshold method to determine optimal debt level beyond which further increases in debt decreases returns. This study finds a threshold effect of 20.570% between debt ratio and return on equity. If the debt ratio is lower than 20.570%, a 1% increases in debt ratio increase return on equity by 0.128%. But, when the debt ratio is higher than 20.570%, a 1% increase in debt ratio decreases return on equity by 0.050%. Results: The results suggest that there is an optimal debt ratio of 20.570% at which point further increase in debt decreases return on equity. Conclusion: These results support the tradeoff theory, which suggests that there is an optimum debt level that maximizes returns. |
| first_indexed | 2025-11-15T10:35:25Z |
| format | Article |
| id | upm-53393 |
| institution | Universiti Putra Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-15T10:35:25Z |
| publishDate | 2016 |
| publisher | Asian Network for Scientific Information |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | upm-533932017-10-26T05:03:03Z http://psasir.upm.edu.my/id/eprint/53393/ Non-linearity in debt and return relationship: evidence from dynamic panel threshold method Matemilola, Bolaji Tunde Amin Noordin, Bany Ariffin Wan Ngah, Wan Azman Saini Md Nasir, Annuar Background and objective: Moderate debt usage increases returns during economic boom, but high debt could decreases returns during economic recession. This study examines if there is a threshold debt level in the debt-returns relationship. Methodology: This study applies dynamic panel-threshold method to determine optimal debt level beyond which further increases in debt decreases returns. This study finds a threshold effect of 20.570% between debt ratio and return on equity. If the debt ratio is lower than 20.570%, a 1% increases in debt ratio increase return on equity by 0.128%. But, when the debt ratio is higher than 20.570%, a 1% increase in debt ratio decreases return on equity by 0.050%. Results: The results suggest that there is an optimal debt ratio of 20.570% at which point further increase in debt decreases return on equity. Conclusion: These results support the tradeoff theory, which suggests that there is an optimum debt level that maximizes returns. Asian Network for Scientific Information 2016 Article PeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/53393/1/Non-linearity%20in%20debt%20and%20return%20relationship.pdf Matemilola, Bolaji Tunde and Amin Noordin, Bany Ariffin and Wan Ngah, Wan Azman Saini and Md Nasir, Annuar (2016) Non-linearity in debt and return relationship: evidence from dynamic panel threshold method. Journal of Applied Sciences, 16 (9). pp. 438-444. ISSN 1812-5654; ESSN: 1812-5662 http://scialert.net/abstract/?doi=jas.2016.438.444 10.3923/jas.2016.438.444 |
| spellingShingle | Matemilola, Bolaji Tunde Amin Noordin, Bany Ariffin Wan Ngah, Wan Azman Saini Md Nasir, Annuar Non-linearity in debt and return relationship: evidence from dynamic panel threshold method |
| title | Non-linearity in debt and return relationship: evidence from dynamic panel threshold method |
| title_full | Non-linearity in debt and return relationship: evidence from dynamic panel threshold method |
| title_fullStr | Non-linearity in debt and return relationship: evidence from dynamic panel threshold method |
| title_full_unstemmed | Non-linearity in debt and return relationship: evidence from dynamic panel threshold method |
| title_short | Non-linearity in debt and return relationship: evidence from dynamic panel threshold method |
| title_sort | non-linearity in debt and return relationship: evidence from dynamic panel threshold method |
| url | http://psasir.upm.edu.my/id/eprint/53393/ http://psasir.upm.edu.my/id/eprint/53393/ http://psasir.upm.edu.my/id/eprint/53393/ http://psasir.upm.edu.my/id/eprint/53393/1/Non-linearity%20in%20debt%20and%20return%20relationship.pdf |