Does financial development matter for firm performance in Asia-Pacific markets? Evidence from large firm-level data

Abstract

This study investigates the impact of financial market development on the finan-cial performance of 18,751 non-financial listed and active firms across 12 Asian economies from 1996 to 2020. Financial development is measured using the IMF’s financial development index, while firm performance is assessed through return on investment, return on assets, and return on equity. The analysis incorporates macroeconomic and firm-level controls such as GDP per capita, employment, firm size, leverage, tangibility, current ratio, asset turnover, and sales growth in panel regression models. Results reveal a positive and significant effect of financial devel-opment on firm performance in countries like China, India, Indonesia, South Korea, Malaysia, Pakistan, and Thailand, but an insignificant effect in Israel, Singapore, Hong Kong, Japan, and the Philippines. The financial development negatively af-fects small firms’ performance relative to medium and large firms. No significant differences are observed between financially developing and developed economies in terms of the impact of financial development on firm performance