The impact of financial constraints and ratings on firm productivity in Malaysia

Mohd Adib Ismail, Nur Madihah Rozak, Murni Yunus Mawar

Research output: Contribution to journalArticle

Abstract

Each firm needs sufficient financial resources to ensure that it can operate smoothly and expand its market share. However, firms will face problems if there are financial constraints and low ratings to convince outside investors. Therefore, this study aims to analyze the impact of financial constraints and the influence of a firm's rating on firm productivity. The firms selected as the sample of study are firms listed on Bursa Malaysia's main board. The firm data are obtained from Thomson Reuters Data Stream and rating agencies' websites. The collected data are annual data from 2000 to 2015. The firm's production data are analyzed to obtain the Total Factor Productivity (TFP). Further, TFP is tested using a dynamic panel data model that employs the generalized method of moments (GMM) to analyze the impact of financial constraints and ratings on firm productivity in Malaysia. The findings show that financial constraints and short-term ratings play important roles in influencing firm productivity. In this regard, the results show that firms rely heavily on internal funding sources. In addition, an increase in firms' short-term ratings have a positive impact on their productivity. In contrast, long-term ratings do not have a significant impact on firm productivity. It implies that better short-term ratings are important in such that firms provide a positive signal to investors to invest in the firms. Hence, providing external sources of financing.

Original languageEnglish
Pages (from-to)247-264
Number of pages18
JournalInternational Journal of Economics and Management
Volume12
Issue number1
Publication statusPublished - 1 Jun 2018

Fingerprint

Financial constraints
Rating
Malaysia
Firm productivity
Total factor productivity
Investors
Generalized method of moments
Market share
Data streams
Financial resources
Dynamic panel data model
Web sites
Rating agencies
Productivity
Funding
Financing

Keywords

  • Credit ratings
  • Financial constraints
  • Firm's productivity
  • Long-term ratings
  • Short-term ratings

ASJC Scopus subject areas

  • Business and International Management
  • Economics, Econometrics and Finance(all)
  • Strategy and Management

Cite this

The impact of financial constraints and ratings on firm productivity in Malaysia. / Ismail, Mohd Adib; Rozak, Nur Madihah; Mawar, Murni Yunus.

In: International Journal of Economics and Management, Vol. 12, No. 1, 01.06.2018, p. 247-264.

Research output: Contribution to journalArticle

@article{b3bf1635cac140eeac56bffaa3c34456,
title = "The impact of financial constraints and ratings on firm productivity in Malaysia",
abstract = "Each firm needs sufficient financial resources to ensure that it can operate smoothly and expand its market share. However, firms will face problems if there are financial constraints and low ratings to convince outside investors. Therefore, this study aims to analyze the impact of financial constraints and the influence of a firm's rating on firm productivity. The firms selected as the sample of study are firms listed on Bursa Malaysia's main board. The firm data are obtained from Thomson Reuters Data Stream and rating agencies' websites. The collected data are annual data from 2000 to 2015. The firm's production data are analyzed to obtain the Total Factor Productivity (TFP). Further, TFP is tested using a dynamic panel data model that employs the generalized method of moments (GMM) to analyze the impact of financial constraints and ratings on firm productivity in Malaysia. The findings show that financial constraints and short-term ratings play important roles in influencing firm productivity. In this regard, the results show that firms rely heavily on internal funding sources. In addition, an increase in firms' short-term ratings have a positive impact on their productivity. In contrast, long-term ratings do not have a significant impact on firm productivity. It implies that better short-term ratings are important in such that firms provide a positive signal to investors to invest in the firms. Hence, providing external sources of financing.",
keywords = "Credit ratings, Financial constraints, Firm's productivity, Long-term ratings, Short-term ratings",
author = "Ismail, {Mohd Adib} and Rozak, {Nur Madihah} and Mawar, {Murni Yunus}",
year = "2018",
month = "6",
day = "1",
language = "English",
volume = "12",
pages = "247--264",
journal = "International Journal of Economics and Management",
issn = "1823-836X",
publisher = "Universiti Putra Malaysia",
number = "1",

}

TY - JOUR

T1 - The impact of financial constraints and ratings on firm productivity in Malaysia

AU - Ismail, Mohd Adib

AU - Rozak, Nur Madihah

AU - Mawar, Murni Yunus

PY - 2018/6/1

Y1 - 2018/6/1

N2 - Each firm needs sufficient financial resources to ensure that it can operate smoothly and expand its market share. However, firms will face problems if there are financial constraints and low ratings to convince outside investors. Therefore, this study aims to analyze the impact of financial constraints and the influence of a firm's rating on firm productivity. The firms selected as the sample of study are firms listed on Bursa Malaysia's main board. The firm data are obtained from Thomson Reuters Data Stream and rating agencies' websites. The collected data are annual data from 2000 to 2015. The firm's production data are analyzed to obtain the Total Factor Productivity (TFP). Further, TFP is tested using a dynamic panel data model that employs the generalized method of moments (GMM) to analyze the impact of financial constraints and ratings on firm productivity in Malaysia. The findings show that financial constraints and short-term ratings play important roles in influencing firm productivity. In this regard, the results show that firms rely heavily on internal funding sources. In addition, an increase in firms' short-term ratings have a positive impact on their productivity. In contrast, long-term ratings do not have a significant impact on firm productivity. It implies that better short-term ratings are important in such that firms provide a positive signal to investors to invest in the firms. Hence, providing external sources of financing.

AB - Each firm needs sufficient financial resources to ensure that it can operate smoothly and expand its market share. However, firms will face problems if there are financial constraints and low ratings to convince outside investors. Therefore, this study aims to analyze the impact of financial constraints and the influence of a firm's rating on firm productivity. The firms selected as the sample of study are firms listed on Bursa Malaysia's main board. The firm data are obtained from Thomson Reuters Data Stream and rating agencies' websites. The collected data are annual data from 2000 to 2015. The firm's production data are analyzed to obtain the Total Factor Productivity (TFP). Further, TFP is tested using a dynamic panel data model that employs the generalized method of moments (GMM) to analyze the impact of financial constraints and ratings on firm productivity in Malaysia. The findings show that financial constraints and short-term ratings play important roles in influencing firm productivity. In this regard, the results show that firms rely heavily on internal funding sources. In addition, an increase in firms' short-term ratings have a positive impact on their productivity. In contrast, long-term ratings do not have a significant impact on firm productivity. It implies that better short-term ratings are important in such that firms provide a positive signal to investors to invest in the firms. Hence, providing external sources of financing.

KW - Credit ratings

KW - Financial constraints

KW - Firm's productivity

KW - Long-term ratings

KW - Short-term ratings

UR - http://www.scopus.com/inward/record.url?scp=85050931682&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85050931682&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:85050931682

VL - 12

SP - 247

EP - 264

JO - International Journal of Economics and Management

JF - International Journal of Economics and Management

SN - 1823-836X

IS - 1

ER -