Journal of Accounting, Finance & Management Strategy










Volume 12, Number 2, December 2017

An Exploration of the Relationship between Financial Decision-Making and Operational Performance in the Panel Industry


The panel industry is a capital intensive industry. From research and development activities to manufacturing and production, firms in the panel industry must have large amount of capital to maintain their business operations. Yet large sums of capital are not something that individual companies can afford alone, thus corporate financial decisions are particularly important for the panel industry. This study attempts to investigate the relationship between the extent to which firms in Taiwan’s panel industry use debt and equity for financing purposes and their operational performance. Based on the theory of capital structure, the study makes use of financial leverage and DuPont analysis’s structure.

The study has chosen return on equity (ROE) to represent the concept of business efficiency that it wishes to explore, whereas debt ratio, long-term capital ratio, and debt-equity ratio shall be used for the analysis of capital structures. The empirical sample was taken from the industrial structure as defined by the Panel Industry Promotion Office, Industrial Development Bureau, Ministry of Economic Affairs. Data were collected from the first quarter of 1999 to the second quarter of 2005, a total of 26 periods for each firm. After removing firms that had defective data (i.e., firms with incomplete information, firms whose tenures were shorter than the sample period, and firms that disappeared or had merged with other firms), 20 manufacturers remained in the dataset for subsequent empirical model estimation. Because the very nature of these industry data allowed “operational performance” and “financial decision-making” variables to interact with one another, it was not possible to obtain direct explanations from the same-period variables. Thus the study used a Panel Data model, which is a statistical method that combines cross-sectional and time series data. The cross-sectional samples were first sorted by time period, and then stacked to reduce the problems caused by missing variables.

Results from the study show that debt-equity ratio has a significant negative relationship with operational performance, whereas long-term capital ratio and operational performance have a positive relationship.

Keywords: Financing Decision-Making, Financial Leverage, Operational Performance

JEL Classification: B23, C23, G32