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Abstract

Financial accounting information plays an important role in assessing and forecasting firms’ financial performance. But besides that, there are other external factors affecting the performance of firms, such as economic and financial crises, which cause imbalances over the economy and affects the business environment. Thus, based on financial statements data, in this paper, the determinants of financial performance are examined, and the impact of a financial crisis on these factors is analyzed, using the fixed and random effects panel estimators. A sample of non-financial firms from European countries considering annual data for the period of 2006 to 2015 was used for this research. The results achieved by panel data analysis show that a crisis exerts a significant positive effect over financial performance as well as liquidity, assets turnover, and labor productivity, meaning that firms tend to put in greater efforts to maintain financial performance in the face of a crisis. Financial performance is significantly and negatively influenced by leverage independently of the crisis effect, showing return on assets to be lower than the average interest rate.

Abstract

This paper examines the credit risk and capital adequacy of the 567 rural banks in the Philippines to investigate how both variables affect bank profitability. Using the Arellano-Bond estimator, we found out that credit risk has a negative and statistically significant relationship with profitability. However, empirical analysis showed that capital adequacy has no significant impact on the profitability of rural banks in the Philippines. It is therefore necessary for the rural banks to examine more deeply if capital infusion would result in higher profitability than increasing debts. The study also implies that it is imperative for the banks to understand which risk factors have greater impact on their financial performance and use better risk-adjusted performance measurement to support their strategies. Rural banks should establish credit risk management that defines the process from initiation to approval of loans, taking into consideration the sound credit risk management practices issued by regulatory bodies. Moreover, rural banks need to enhance internal control measures to ensure the strict implementation of internal processes on lending operations.