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Can Properly Raised Debts Help Increase the Profits of Industrial Enterprises?

  • Zhang, Cheng (School of Finance and Economics, Yangtze Normal University) ;
  • Song, Li-Yuan (Dept. of Foreign Language Teaching and Research, Yangtze Normal University)
  • Received : 2017.11.24
  • Accepted : 2018.07.14
  • Published : 2019.08.31

Abstract

To figure out the impact of debt financing on the profits of industrial enterprises, it starts with calculating the first differences against the logarithms of the cost profit ratios and the debt asset ratios of Chinese industrial enterprises during 179 months from 2002 to 2016; next, it runs the cointegration test and afterwards the regression test to analyze the obtained first differences, and still next uses the Simulink software to get the regularity of those changes. It finds out that there is not only a long-term stable relationship between the enterprises' profits and debts, but also a steady time series trend within a short term. The profit rate positively correlates to the debt asset ratio, and profit for the current term positively correlates to the profit for the previous term. It indicates that properly raised debts can help increase the profit rate of the industrial enterprises, and a higher previous profit level can help improve the current profit level.

Keywords

Co-integration;Debt;Profit;Regression;Simulation

Acknowledgement

Supported by : Chongqing Social Science Fund, Yangtze Normal University

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