Evaluation Of The Effectivenessof Financial Structure And Its Impact On The Respective Company’s Financial Strength

Abstract

The problem of the research has been about how to evaluate company’s financial structure and its impact on respective company’s financial strength. The main alternative hypothesis has stipulated, “The process of identification, evaluation and monitoring of the effectiveness of company’s financial structure and its impact on the respectivecompany’s financial strength depends on the result of the trade-off process among the key underline factors of the financial strength function”. The empirical study consists of two phases; the financial analytical and the field survey studies. The financial analytical study has been conducted through a dynamic financial structural model, which has been based on Altman’s multivariate Z score function. It has been applied to a representative sample of twenty listed companies plus one unlisted company, distributed over eleven regional and international stock exchanges. The collected financial data of each company have covered six consecutive years during the period 2010-2016. The conclusions of the three level testing of the analytical study have supported the alternative hypothesis and dismissed the null one, as shown below: 1. The effectiveness of the company’s financial structure depends on the result of the trade-off process among the key underline factors of financial strength (KUFFs), therefore the effective financial structure varies from one company to another and even for one company it varies over time, thus there is no one best financial structure for all situations and times. 2. The financial structure has a net impact on company’s financial strength because of the net impact of its twin factors; the financial leverage (FL) and the net working capital liquidity (NWC LQ). 3. The result of the analysis of the four panel financial structural matrix showed that the effectiveness of company’s financial structure and the assessment of its impact on company’s financial strength vary according to the change of the relevant financial structural panel that conforms with the classification of the twin factors of respective company’s financial structure as either high or low. 4. The result of the financial analysis of all companies showed that theeffectiveness of the company’s financial structure can be evaluated through the benchmark comparison with the average financial structures of all companies that fall within the same industry or of the same economic environment. A field survey study has been conducted in order to provide sufficient evidence to corroborate the results obtained at the financial analytical phase, it has been conducted through a questionnaire, using a representative sample of professional practitioners. The conclusions reached therefrom had confirmed and supported the conclusions reached at the analytical financial study. Accordingly, the two sides of the empirical study have arrived at similar conclusions, which have largely approved the alternative hypothesis and dismissed the null one. It has been recommended that non-financial companies could apply the designated model for a number of consecutive periods in order to identify, evaluate and monitor company’s financial structure and assess its impacts on company’s financial strength. It has also been recommended that future academic research in the field of financial structurefor existing companies or future projects, should be directed towards the development of more effective modelsbased on practical concepts and principle and to be conducted on the same field of study and the related issues.