In this paper, we focus on the semiconductor
manufacturing industry and investigate whether the firms sales growth and their Return on Equity (ROE) have an asymmetric nonlinear relationship in different debt ratio regimes by using financial statement-based data and employing a more powerful panel threshold regression model developed by Hansen (1999) over the 1999 first
quarter (1Q) to 2005 third quarter (3Q) period. The result shows that there exists a double threshold effect and that the threshold values of debt ratio are 1 ˆ 0.4935 and 2 ˆ 0.6847. When the debt ratio is below 68.47%, ROE will be increased by continual equipment investment.
However, when the debt ratio is above 68.47%, ROE will be decreased by continual equipment investment. These findings could be valuable for both the market investors to
search their target of investment and corporation managers who can utilize them to adjust their production strategy and
investment decision for increasing their business performance.
