Leverage Effect between ROA and ROE During the Covid-Crisis Based on a Hungarian Company Database
This paper is devoted to examining two extremely popular financing principles in the practice of Hungarian companies during the Covid-crisis. The leverage effect explains how the Return on Equity can be improved compared to the Return on Assets, the risk matching principle states that the risky ass...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
University of Miskolc
2023-12-01
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| Series: | Theory, Methodology, Practice |
| Subjects: | |
| Online Access: | https://ojs.uni-miskolc.hu/index.php/tmp/article/view/2698 |
| _version_ | 1797354457170706432 |
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| author | Sándor Bozsik Judit Szemán |
| author_facet | Sándor Bozsik Judit Szemán |
| author_sort | Sándor Bozsik |
| collection | DOAJ |
| description |
This paper is devoted to examining two extremely popular financing principles in the practice of Hungarian companies during the Covid-crisis. The leverage effect explains how the Return on Equity can be improved compared to the Return on Assets, the risk matching principle states that the risky assets should be financed mostly from equity and the secure assets should be financed mostly from debt. The Covid-crisis is an excellent opportunity to study the relevance of these principles. The validity of these principles is examined in a sample containing about 30.000 company financial reports. The most important findings are the following: The profitability does not determine the leverage, but the high leverage determines the low profitability. The profitability is the consequence of former decisions about the debt-equity relationship, the debt/equity ratio would be the consequence of the profitability. The risk matching principles cannot be justified by the used sample.
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| first_indexed | 2024-03-08T13:49:39Z |
| format | Article |
| id | doaj.art-cdc0b38e2d0146ccbc5e45ba9753283e |
| institution | Directory Open Access Journal |
| issn | 1589-3413 2415-9883 |
| language | English |
| last_indexed | 2024-03-08T13:49:39Z |
| publishDate | 2023-12-01 |
| publisher | University of Miskolc |
| record_format | Article |
| series | Theory, Methodology, Practice |
| spelling | doaj.art-cdc0b38e2d0146ccbc5e45ba9753283e2024-01-16T05:40:47ZengUniversity of MiskolcTheory, Methodology, Practice1589-34132415-98832023-12-01190210.18096/TMP.2023.02.05Leverage Effect between ROA and ROE During the Covid-Crisis Based on a Hungarian Company Database Sándor Bozsik0Judit Szemán1Miskolci EgyetemUniversity of Miskolc This paper is devoted to examining two extremely popular financing principles in the practice of Hungarian companies during the Covid-crisis. The leverage effect explains how the Return on Equity can be improved compared to the Return on Assets, the risk matching principle states that the risky assets should be financed mostly from equity and the secure assets should be financed mostly from debt. The Covid-crisis is an excellent opportunity to study the relevance of these principles. The validity of these principles is examined in a sample containing about 30.000 company financial reports. The most important findings are the following: The profitability does not determine the leverage, but the high leverage determines the low profitability. The profitability is the consequence of former decisions about the debt-equity relationship, the debt/equity ratio would be the consequence of the profitability. The risk matching principles cannot be justified by the used sample. https://ojs.uni-miskolc.hu/index.php/tmp/article/view/2698leverage effect, risk matching principle, ROA, ROE |
| spellingShingle | Sándor Bozsik Judit Szemán Leverage Effect between ROA and ROE During the Covid-Crisis Based on a Hungarian Company Database Theory, Methodology, Practice leverage effect, risk matching principle, ROA, ROE |
| title | Leverage Effect between ROA and ROE During the Covid-Crisis Based on a Hungarian Company Database |
| title_full | Leverage Effect between ROA and ROE During the Covid-Crisis Based on a Hungarian Company Database |
| title_fullStr | Leverage Effect between ROA and ROE During the Covid-Crisis Based on a Hungarian Company Database |
| title_full_unstemmed | Leverage Effect between ROA and ROE During the Covid-Crisis Based on a Hungarian Company Database |
| title_short | Leverage Effect between ROA and ROE During the Covid-Crisis Based on a Hungarian Company Database |
| title_sort | leverage effect between roa and roe during the covid crisis based on a hungarian company database |
| topic | leverage effect, risk matching principle, ROA, ROE |
| url | https://ojs.uni-miskolc.hu/index.php/tmp/article/view/2698 |
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