Financial performance of the U.S. forest-product companies: value-added determinants of business success.

Abstract

The purpose of the study is to determine the effects of value-added components (gross value-added and investments), size and leverage on the long- and short-term financial performance of the forest, pulp and paper companies. The empirical testing was carried out using accounting data of 37 large- and medium-sized U.S. companies spanning from 2005 to 2008. The results of the regression analysis indicate that companies which are focused on tangible investments tend to have poor performance in the short run, showing problems with liquidity measured by the current ratio. The long-term performance presented by turnover growth is found to be affected by the size and leverage factors. Thus, small firms outperform large companies in growth opportunities and are considered to be more flexible in strategic choices. Furthermore, higher leveraged firms are discovered to improve their performance by aggressive financing of their business with debt, however, leading to the volatile earnings over a longer perspective. Moreover, no evidence on the gross value-added impact on the firm’s business success has been obtained.