TY - JOUR
T1 - Determinants of return-on-equity in USA, German and Japanese manufacturing firms
AU - Weidman, Stephanie M.
AU - McFarland, Daniel J.
AU - Meric, Gulser
AU - Meric, Ilhan
N1 - Publisher Copyright:
© 2019, Emerald Publishing Limited.
PY - 2019/4/8
Y1 - 2019/4/8
N2 - Purpose: DuPont financial analysis is generally used in micro-economic studies to compare an individual firm’s financial performance with industry averages. The purpose of this paper is to undertake a macro-economic cross-sectional analysis of the determinants of return-on-equity (ROE) in USA, German and Japanese manufacturing firms. Design/methodology/approach: The authors use cross-sectional log-linear multivariate regression analysis to determine the elasticity of ROE to changes in net profit margin (NPM), total assets turnover (TAT) and equity multiplier (EQM) in USA, German and Japanese manufacturing firms. The authors obtain the data for the analysis from the COMPUSTAT Research Insight/Global Vintage database. Findings: With data for all manufacturing firms, the authors find that the most important determinant of ROE is NPM in all three countries. The least important determinant of ROE is TAT in the USA and Germany, and EQM in Japan. Electronics is the most important manufacturing industry in all three countries, the authors also apply the analysis to data for the electronics manufacturing firms in the three countries. The authors find that an increase of 10 percent in NPM increases ROE by about 9.8 percent in Germany, by about 8.3 percent in the USA, and by about 6.9 percent in Japan. An increase of 10 percent in TAT increases ROE by about 2.2 percent in Germany and by about 1.5 percent in Japan. An increase of 10 percent in EQM increases ROE by about 1.9 percent in Germany and by about 1.5 percent in the USA. Practical implications: The empirical findings of this study can provide useful insights for financial managers regarding the determinants of ROE they should focus on to achieve the greatest impact on ROE. Originality/value: DuPont analysis is generally used as a micro-economic tool at the firm level. This study is a macro-economic application of the tool to study the cross-sectional determinants of ROE at the industry level.
AB - Purpose: DuPont financial analysis is generally used in micro-economic studies to compare an individual firm’s financial performance with industry averages. The purpose of this paper is to undertake a macro-economic cross-sectional analysis of the determinants of return-on-equity (ROE) in USA, German and Japanese manufacturing firms. Design/methodology/approach: The authors use cross-sectional log-linear multivariate regression analysis to determine the elasticity of ROE to changes in net profit margin (NPM), total assets turnover (TAT) and equity multiplier (EQM) in USA, German and Japanese manufacturing firms. The authors obtain the data for the analysis from the COMPUSTAT Research Insight/Global Vintage database. Findings: With data for all manufacturing firms, the authors find that the most important determinant of ROE is NPM in all three countries. The least important determinant of ROE is TAT in the USA and Germany, and EQM in Japan. Electronics is the most important manufacturing industry in all three countries, the authors also apply the analysis to data for the electronics manufacturing firms in the three countries. The authors find that an increase of 10 percent in NPM increases ROE by about 9.8 percent in Germany, by about 8.3 percent in the USA, and by about 6.9 percent in Japan. An increase of 10 percent in TAT increases ROE by about 2.2 percent in Germany and by about 1.5 percent in Japan. An increase of 10 percent in EQM increases ROE by about 1.9 percent in Germany and by about 1.5 percent in the USA. Practical implications: The empirical findings of this study can provide useful insights for financial managers regarding the determinants of ROE they should focus on to achieve the greatest impact on ROE. Originality/value: DuPont analysis is generally used as a micro-economic tool at the firm level. This study is a macro-economic application of the tool to study the cross-sectional determinants of ROE at the industry level.
UR - http://www.scopus.com/inward/record.url?scp=85063954938&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85063954938&partnerID=8YFLogxK
U2 - 10.1108/MF-07-2018-0305
DO - 10.1108/MF-07-2018-0305
M3 - Article
AN - SCOPUS:85063954938
SN - 0307-4358
VL - 45
SP - 445
EP - 451
JO - Managerial Finance
JF - Managerial Finance
IS - 3
ER -