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The Effect of Leverage and Debt Maturity on the Corporate Financial Performance: Evidence from Non Financial Firms Listed at Pakistan Stock Exchange

Author

Listed:
  • Khan, Naveed
  • Ullah, Hamid
  • Afeef, Mustafa

Abstract

Purpose This study examined the effect of leverage, debt maturity on corporate financial performance of non-financial firms listed at the Pakistan Stock Exchange. Targeted population of this study was 100 firm listed at PSX as KSE-100 index out of which 74 non-financial firms were selected from 28 different sectors for the period of 5 years 2013 to 2017. Design/Methodology/Approach: Financial performance measured by ROA, ROE, while leverage, short term leverage, long term leverage taken as independent variables, four variables were taken as control which are size, current ratio, sale growth, tangibility. On the basis of Hausman test, results of random effect model were found appropriate.Findings: ST and LT Leverage have a negative significant and insignificant effect on financial performance (ROA) respectively, moreover long term leverage has a positive and significant but short has a negative and insignificant effect on ROE. The results of the control variables showed that size has a negative and significant effect on ROA and ROE, whereas current ratio has insignificant and negative effect on ROA, ROE. Sale growth has a positive and insignificant effect on firms ROA and ROE. Tangibility has insignificant and negative effect on financial performance.Implications/Originality/Value: This study is consistent with traditional trade-off theory and recommended that management of the non-financial firms listed at the PSX should employ minimal debt level or use an optimal level of capital structure and also to attract good management thus to improve their financial performance.

Suggested Citation

  • Khan, Naveed & Ullah, Hamid & Afeef, Mustafa, 2021. "The Effect of Leverage and Debt Maturity on the Corporate Financial Performance: Evidence from Non Financial Firms Listed at Pakistan Stock Exchange," Sustainable Business and Society in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 3(1), pages 35-47, March.
    • Handle: RePEc:src:sbseec:v:3:y:2021:i:1:p:35-47
    DOI: http://doi.org/10.26710/sbsee.v3i1.1829
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