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LEVERAGE, LIQUIDITY AND PROFITABILITY RATIOS: ACCOUNTABILITY OF MALAYSIAN LISTED OIL AND GAS FIRMS
Corresponding Author(s) : Nor Farizal Mohammed
Humanities & Social Sciences Reviews,
Vol. 8 No. 2 (2020): March
Abstract
Purpose: This study examines the impact of leverage and liquidity on the profitability among the listed O&G firms in Malaysia.
Methodology: Data were gained from the audited financial statements of 22listed O&G firms for a period of ten years (2008 – 2017) and a quantitative data methodology was utilized to analyze the study.
Main Findings: The findings demonstrated that leverage in terms of debt-equity ratio has a significant negative association on a firm's profitability. Nevertheless, liquidity ratios are found to be insignificantly related to the profitability of the O&G industry in Malaysia.
Implications: This study contributes to raising awareness amongst the top management of firms, the analysts, and the investors in monitoring and forecasting for the firm's profitability and the value of the firms, thus contributing to the better investment decision making.
Keywords
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- Achchuthan, S., & Rajendran, K. (2013). Corporate governance practices and working capital management efficiency: particular reference to listed manufacturing companies in Sri Lanka.Information & Knowledge Management, 3(2).
- Ahmad, N., Salman, A., &Shamsi, A. (2015). Impact of Financial Leverage on Firms Profitability: An Investigation from Cement Sector of Pakistan. Research Journal of Finance and Accounting, 6(7).
- Aishwarya, P., & Pavithra, K. (2016). Leverage analysis on subsidiaries of ONGC, 2(1), 36–39.
- Akinmulegun, S.O (2012). The effect of financial leverage on corporate performance of some selected companies.Nigeria Canadian Social Science, 8(1), 85 – 91.
- Alkhatib, K. (2012). The Determinants of leverage of listed companies. International Journal of Business and Social Science, 3(24), 78–83.
- Awan, M. R. (2014). Impact of liquidity, leverage, inflation on firm profitability an empirical analysis of food sector of Pakistan. IOSR Journal of Business and Management (IOSR-JBM), 16(1), 104–112. https://doi.org/10.9790/487X-1617104112 DOI: https://doi.org/10.9790/487X-1617104112
- McGowan, C. B., Billah, N. M. B., &Jakob, N. A. (2015). Liquidity Analysis of Selected Public-Listed Companies in Malaysia. Issues in Economics and Business. 1(1). https://doi.org/10.5296/ieb.v1i1.7508 DOI: https://doi.org/10.5296/ieb.v1i1.7508
- Cicirko, T. (2010). Podstawy zarządzania płynnością finansową przedsiębiorstwa. Warszawa: Oficyna Wydawnicza Szkoła Główna Handlowa.
- Dahiyat, A. (2016). Does liquidity and solvency affect banks profitability? Evidence from listed banks in Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 6(1), 35–40. https://doi.org/10.6007/IJARAFMS/v6-i1/1954 DOI: https://doi.org/10.6007/IJARAFMS/v6-i1/1954
- Dalci, I. (2018). Impact of financial leverage on the profitability of listed manufacturing firms in China. Pacific Accounting Review, 30 (4), 410-432. https://doi.org/10.1108/PAR-01-2018-0008 DOI: https://doi.org/10.1108/PAR-01-2018-0008
- Ehiedu, V. C. (2014). The impact of liquidity on the profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), 81-90.
- Hazarika, I. (2015). Performance analysis of top oil & gas companies worldwide concerning oil prices. Journal of Energy & Economic Development, 1 (1), 62-78.
- Heikal, M., Khaddafi, M., & Ummah, A. (2014). Influence Analysis of Return on Assets (ROA), Return on Equity (ROE), Net Profit Margin (NPM), Debt To Equity Ratio (DER), and current ratio (CR), Against Corporate Profit Growth In Automotive In Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12). https://doi.org/10.6007/IJARBSS/v4-i12/1331 DOI: https://doi.org/10.6007/IJARBSS/v4-i12/1331
- Hovakimian, A., Hovakimian, G., & Tehranian, H. (2004). Determinants of target capital structure: The case of dual debt and equity issues. Journal of Financial Economics, 71(3), 517–540. https://doi.org/10.1016/S0304-405X(03)00181-8 DOI: https://doi.org/10.1016/S0304-405X(03)00181-8
- Kalpana, V. (2014). A Study on Leverage Analyses and its Impact on Profitability of Select Steel Companies Traded in Bse (From 2003 To 2012). Indian Journal of Applied Research, 4(10), 276–280.
- Kemal, M. U. (2011b). Post-Merger Profitability : A Case of Royal Bank of Scotland (RBS). International Journal of Business and Social Science.2(5), 157–162.
- Khan, A., Kaleem, A., & Nazir, M. (2012). Impact of Financial Leverage on Agency cost of Free Cash Flow: Evidence from the Manufacturing sector of Pakistan. Science Series Data Report, 4(6), 79–94.
- Liargovas, P. G., & Skandalis, K. S. (2008). Motives and marketing strategies of Greek companies exporting to south-east European markets. South-Eastern Europe Journal of Economics, 6(2), 227-244.
- Malik, Q. A., &Saif, M. I. (2013). Idiosyncratic effect of liquidity management strategies on corporate performance valuation-a study of chemical industry. World Applied Sciences Journal, 28(1), 114–119.
- Manyo, T. S., & Ogakwu, V. N. (2013). Impact of Liquidity on Return on Assets of
- MIDA (2017). Oil and Gas, Malaysia Investment Development Authority.Retrieved fromhttp://www.mida.gov.my/home/oil-and-gas/posts/
- Mulyana, A., & Saputra, M. (2018). The Influence of Liquidity, Profitability and Leverage on Profit Management and Its Impact on Company Value in Manufacturing Company Listed on Indonesia Stock Exchange Year 2011-2015. International Journal of Managerial Studies and Research, 6(1), 8–14. https://doi.org/10.20431/2349-0349.0601002 DOI: https://doi.org/10.20431/2349-0349.0601002
- Myers, S.C. (1984). The Capital Structure Puzzle. Journal of Finance, 39(3), 575-592. https://doi.org/10.2307/2327916 DOI: https://doi.org/10.2307/2327916
- Onofrei, M., Tudose, M. B., Durdureanu, C., & Anton, S. G. (2015). Determinant Factors of Firm Leverage: An Empirical Analysis at Iasi County Level. Procedia Economics and Finance, 20(15), 460–466. https://doi.org/10.1016/S2212-5671(15)00097-0 DOI: https://doi.org/10.1016/S2212-5671(15)00097-0
- PWC, (2016) The Malaysian Oil and Gas industry; challenging times but fundamental intact, PricewaterhouseCoopers. Retrieved from https://www.pwc.com/my/en/assets/publications/2016-msian-oil-n-gas-industry.pdf
- Rafique, M. (2011). Available online at http://wwww.businessjournalz.org/efr Economics and Finance Review Vol . 1 ( 4 ) pp. 50 – 58, June, 2011 Available online at http://wwww.businessjournalz.org/efr, 1(4), 50–58.
- Ramlan, H., & Bin Nodin, M. (2018). the Effect Leverage, Liquidity and Profitability on the Companies Performance. Journal of Humanities, Language, Culture and Business (HLCB), 2(7), 9–15.
- Rehman, M. U. (2014). Impact Of Liquidity & Solvency On Profitability Chemical Sector Impact Of Liquidity & Solvency On Profitability Chemical Sector Of Pakistan Comsats Institute of Information Technology, Islamabad, Pakistan. Ekonomika Management Inovace, 6(3), 12.
- Rehman, M. Z., Khan, M. N., & Khokhar, I. (2015). Investigating liquidity-profitability relationship: Evidence from companies listed in Saudi stock exchange (Tadawul). Journal of Applied Finance and Banking, 5(3), 159.
- Saleem, Q., & Rehman, R. (2011). Impacts of liquidity ratios on profitability. Interdisciplinary Journal of Research in Business, 1(7), 95–98.
- Titman, S., & Wessels, R. (1988). The Determinants of Capital Structure Choice. The Journal of Finance, 43(1), 1–19. https://doi.org/10.1111/j.1540-6261.1988.tb02585.x DOI: https://doi.org/10.1111/j.1540-6261.1988.tb02585.x
- Umobong, A. A. (2015). Assessing The Impact Of Liquidity And Profitability Ratios On Growth Of Profits In Pharmaceutical Firms In Nigeria. European Journal of Accounting, Auditing and Finance Research, 3(10), 97–114.
- Velnampy, T. (2013). Corporate Governance and Firm Performance : A Study of Sri Lankan Manufacturing Companies. Journal of Economics and Sustainable Development, 4(3), 228–236.
- Vithessonthi, C., & Tongurai, J. (2015). The effect of firm size on the leverage-performance relationship during the financial crisis of 2007-2009. Journal of Multinational Financial Management, 29, 1–29. https://doi.org/10.1016/j.mulfin.2014.11.001 DOI: https://doi.org/10.1016/j.mulfin.2014.11.001
- Yoon, E., & Jang, S. (2005). The effect of financial leverage on profitability and risk of restaurant firms. The Journal of Hospitality Financial Management, 13(1), 35-47. https://doi.org/10.1080/10913211.2005.10653798 DOI: https://doi.org/10.1080/10913211.2005.10653798
References
Achchuthan, S., & Rajendran, K. (2013). Corporate governance practices and working capital management efficiency: particular reference to listed manufacturing companies in Sri Lanka.Information & Knowledge Management, 3(2).
Ahmad, N., Salman, A., &Shamsi, A. (2015). Impact of Financial Leverage on Firms Profitability: An Investigation from Cement Sector of Pakistan. Research Journal of Finance and Accounting, 6(7).
Aishwarya, P., & Pavithra, K. (2016). Leverage analysis on subsidiaries of ONGC, 2(1), 36–39.
Akinmulegun, S.O (2012). The effect of financial leverage on corporate performance of some selected companies.Nigeria Canadian Social Science, 8(1), 85 – 91.
Alkhatib, K. (2012). The Determinants of leverage of listed companies. International Journal of Business and Social Science, 3(24), 78–83.
Awan, M. R. (2014). Impact of liquidity, leverage, inflation on firm profitability an empirical analysis of food sector of Pakistan. IOSR Journal of Business and Management (IOSR-JBM), 16(1), 104–112. https://doi.org/10.9790/487X-1617104112 DOI: https://doi.org/10.9790/487X-1617104112
McGowan, C. B., Billah, N. M. B., &Jakob, N. A. (2015). Liquidity Analysis of Selected Public-Listed Companies in Malaysia. Issues in Economics and Business. 1(1). https://doi.org/10.5296/ieb.v1i1.7508 DOI: https://doi.org/10.5296/ieb.v1i1.7508
Cicirko, T. (2010). Podstawy zarządzania płynnością finansową przedsiębiorstwa. Warszawa: Oficyna Wydawnicza Szkoła Główna Handlowa.
Dahiyat, A. (2016). Does liquidity and solvency affect banks profitability? Evidence from listed banks in Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 6(1), 35–40. https://doi.org/10.6007/IJARAFMS/v6-i1/1954 DOI: https://doi.org/10.6007/IJARAFMS/v6-i1/1954
Dalci, I. (2018). Impact of financial leverage on the profitability of listed manufacturing firms in China. Pacific Accounting Review, 30 (4), 410-432. https://doi.org/10.1108/PAR-01-2018-0008 DOI: https://doi.org/10.1108/PAR-01-2018-0008
Ehiedu, V. C. (2014). The impact of liquidity on the profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), 81-90.
Hazarika, I. (2015). Performance analysis of top oil & gas companies worldwide concerning oil prices. Journal of Energy & Economic Development, 1 (1), 62-78.
Heikal, M., Khaddafi, M., & Ummah, A. (2014). Influence Analysis of Return on Assets (ROA), Return on Equity (ROE), Net Profit Margin (NPM), Debt To Equity Ratio (DER), and current ratio (CR), Against Corporate Profit Growth In Automotive In Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12). https://doi.org/10.6007/IJARBSS/v4-i12/1331 DOI: https://doi.org/10.6007/IJARBSS/v4-i12/1331
Hovakimian, A., Hovakimian, G., & Tehranian, H. (2004). Determinants of target capital structure: The case of dual debt and equity issues. Journal of Financial Economics, 71(3), 517–540. https://doi.org/10.1016/S0304-405X(03)00181-8 DOI: https://doi.org/10.1016/S0304-405X(03)00181-8
Kalpana, V. (2014). A Study on Leverage Analyses and its Impact on Profitability of Select Steel Companies Traded in Bse (From 2003 To 2012). Indian Journal of Applied Research, 4(10), 276–280.
Kemal, M. U. (2011b). Post-Merger Profitability : A Case of Royal Bank of Scotland (RBS). International Journal of Business and Social Science.2(5), 157–162.
Khan, A., Kaleem, A., & Nazir, M. (2012). Impact of Financial Leverage on Agency cost of Free Cash Flow: Evidence from the Manufacturing sector of Pakistan. Science Series Data Report, 4(6), 79–94.
Liargovas, P. G., & Skandalis, K. S. (2008). Motives and marketing strategies of Greek companies exporting to south-east European markets. South-Eastern Europe Journal of Economics, 6(2), 227-244.
Malik, Q. A., &Saif, M. I. (2013). Idiosyncratic effect of liquidity management strategies on corporate performance valuation-a study of chemical industry. World Applied Sciences Journal, 28(1), 114–119.
Manyo, T. S., & Ogakwu, V. N. (2013). Impact of Liquidity on Return on Assets of
MIDA (2017). Oil and Gas, Malaysia Investment Development Authority.Retrieved fromhttp://www.mida.gov.my/home/oil-and-gas/posts/
Mulyana, A., & Saputra, M. (2018). The Influence of Liquidity, Profitability and Leverage on Profit Management and Its Impact on Company Value in Manufacturing Company Listed on Indonesia Stock Exchange Year 2011-2015. International Journal of Managerial Studies and Research, 6(1), 8–14. https://doi.org/10.20431/2349-0349.0601002 DOI: https://doi.org/10.20431/2349-0349.0601002
Myers, S.C. (1984). The Capital Structure Puzzle. Journal of Finance, 39(3), 575-592. https://doi.org/10.2307/2327916 DOI: https://doi.org/10.2307/2327916
Onofrei, M., Tudose, M. B., Durdureanu, C., & Anton, S. G. (2015). Determinant Factors of Firm Leverage: An Empirical Analysis at Iasi County Level. Procedia Economics and Finance, 20(15), 460–466. https://doi.org/10.1016/S2212-5671(15)00097-0 DOI: https://doi.org/10.1016/S2212-5671(15)00097-0
PWC, (2016) The Malaysian Oil and Gas industry; challenging times but fundamental intact, PricewaterhouseCoopers. Retrieved from https://www.pwc.com/my/en/assets/publications/2016-msian-oil-n-gas-industry.pdf
Rafique, M. (2011). Available online at http://wwww.businessjournalz.org/efr Economics and Finance Review Vol . 1 ( 4 ) pp. 50 – 58, June, 2011 Available online at http://wwww.businessjournalz.org/efr, 1(4), 50–58.
Ramlan, H., & Bin Nodin, M. (2018). the Effect Leverage, Liquidity and Profitability on the Companies Performance. Journal of Humanities, Language, Culture and Business (HLCB), 2(7), 9–15.
Rehman, M. U. (2014). Impact Of Liquidity & Solvency On Profitability Chemical Sector Impact Of Liquidity & Solvency On Profitability Chemical Sector Of Pakistan Comsats Institute of Information Technology, Islamabad, Pakistan. Ekonomika Management Inovace, 6(3), 12.
Rehman, M. Z., Khan, M. N., & Khokhar, I. (2015). Investigating liquidity-profitability relationship: Evidence from companies listed in Saudi stock exchange (Tadawul). Journal of Applied Finance and Banking, 5(3), 159.
Saleem, Q., & Rehman, R. (2011). Impacts of liquidity ratios on profitability. Interdisciplinary Journal of Research in Business, 1(7), 95–98.
Titman, S., & Wessels, R. (1988). The Determinants of Capital Structure Choice. The Journal of Finance, 43(1), 1–19. https://doi.org/10.1111/j.1540-6261.1988.tb02585.x DOI: https://doi.org/10.1111/j.1540-6261.1988.tb02585.x
Umobong, A. A. (2015). Assessing The Impact Of Liquidity And Profitability Ratios On Growth Of Profits In Pharmaceutical Firms In Nigeria. European Journal of Accounting, Auditing and Finance Research, 3(10), 97–114.
Velnampy, T. (2013). Corporate Governance and Firm Performance : A Study of Sri Lankan Manufacturing Companies. Journal of Economics and Sustainable Development, 4(3), 228–236.
Vithessonthi, C., & Tongurai, J. (2015). The effect of firm size on the leverage-performance relationship during the financial crisis of 2007-2009. Journal of Multinational Financial Management, 29, 1–29. https://doi.org/10.1016/j.mulfin.2014.11.001 DOI: https://doi.org/10.1016/j.mulfin.2014.11.001
Yoon, E., & Jang, S. (2005). The effect of financial leverage on profitability and risk of restaurant firms. The Journal of Hospitality Financial Management, 13(1), 35-47. https://doi.org/10.1080/10913211.2005.10653798 DOI: https://doi.org/10.1080/10913211.2005.10653798