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Financial leverage and corporate performance: does the duration of the debt ratio matters?

Author

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  • Kingsley Opoku Appiah
  • Prince Gyimah
  • Yakubu Abdul-Razak

Abstract

This paper examines the relationship between financial leverage and performance of listed firms in an emerging market, Ghana. Specifically, we examine the link between short-term, long-term and total debts on performance. We use data of 190 firm-year observations from 19 listed firms over a period of ten years (2005-2014). Fixed and random effects regression models are used to examine the financial leverage-corporate performance nexus. The result shows that total debt to total assets is negatively related to accounting and market performance. Short-term debt to total assets is also negatively related to return on assets and Tobin's Q but not return on equity. The long-term debt to total assets is negative and insignificantly related to corporate performance. Our contribution is that; short-term debt diminishes shareholder value in the developing economy context.

Suggested Citation

  • Kingsley Opoku Appiah & Prince Gyimah & Yakubu Abdul-Razak, 2020. "Financial leverage and corporate performance: does the duration of the debt ratio matters?," International Journal of Business and Emerging Markets, Inderscience Enterprises Ltd, vol. 12(1), pages 31-45.
    • Handle: RePEc:ids:ijbema:v:12:y:2020:i:1:p:31-45
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    Cited by:

    1. Hossein Tarighi & Zeynab Nourbakhsh Hosseiny & Maryam Akbari & Elaheh Mohammadhosseini, 2023. "The Moderating Effect of the COVID-19 Pandemic on the Relation between Corporate Governance and Firm Performance," JRFM, MDPI, vol. 16(7), pages 1-43, June.
    2. Ayman Hassan Bazhair, 2023. "Board Governance Mechanisms and Capital Structure of Saudi Non-Financial Listed Firms: A Dynamic Panel Analysis," SAGE Open, , vol. 13(2), pages 21582440231, May.

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