Financial Risk of Indebted Companies: A Study of the Impact of Financial Structure and the Earnings Growth

Abstract

The choice of a financial structure by the companies is a strategic decision which frames their use of the fund resources. The companies that are financially well-off resort directly to the equity capital by opting for a perfect autonomy. It also turns out that this is an obvious option, rather than using external resources which come along with financial expenses.

In this article, we are interested in indebted companies and their growth and the impact of the latter on the βeta of their representative stocks. In order to answer this problem, an empirical study was conducted on a panel of 44 Moroccan companies listed on the Casablanca Stock Exchange between 2008 and 2019. Based on the results obtained, we have shown that the level of indebtedness and earnings growth do not have a significant influence on the financial risk measured by the βeta of the companies studied. In this case, we come back to a neutrality of the financial structure and the earnings growth on the βeta displayed by these companies.