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Affect of financial leverage on firm performance. Empirical evidence from Karachi Stock Exchange

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  • Raza, Muhammad Wajid

Abstract

Using panel data analysis, we attempt to find the determinants of capital structure of KSE listed none-financial firms for the period 2004-2009. We first present some descriptive statistics on our selected variables. The most interesting finding of our descriptive statistics is the highest leverage ratio for textile industry whereas the average profitability of textile industry is negatives. The results of this study shows negative relation between performance and leverage. Long term debt is more expensive due to certain direct and indirect costs. Therefore employing high level of debt results low profitability. The result of second hypothesis shows no significance between leverage and profitability. On the basis of these findings it is concluded that profitability is consistent with picking order theory. In the light of above discussion we can say that the existing theories of capital structure contribute to some extent in decision making process.

Suggested Citation

  • Raza, Muhammad Wajid, 2013. "Affect of financial leverage on firm performance. Empirical evidence from Karachi Stock Exchange," MPRA Paper 50383, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:50383
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    File URL: https://mpra.ub.uni-muenchen.de/50383/1/MPRA_paper_50383.pdf
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    References listed on IDEAS

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    1. Muhammad Wajid Raza & Hassan Muhsin, 2013. "Financial Liberalization and Macroeconomic Performance: Empirical Evidence from Selected Asian Countries," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 1(1), pages 16-27.
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    Cited by:

    1. Zaher Abdel Fattah Al-Slehat, 2020. "Impact of Financial Leverage, Size and Assets Structure on Firm Value: Evidence from Industrial Sector, Jordan," International Business Research, Canadian Center of Science and Education, vol. 13(1), pages 109-120, January.
    2. Zahoor Hussain Javed & Huma Huma Rao & Bader Akram & Muhammad Fayyaz Nazir, 2015. "Effect of Financial Leverage on Performance of the Firms: Empirical Evidence from Pakistan," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 65(1-2), pages 87-95, January-M.
    3. Godsday Okoro Edesiri, 2014. "Financial Leverage Behaviour and Firm Performance: Evidence from Publicly Quoted Companies in Nigeria," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 10(4), pages 99-106, August.
    4. Benter Omollo Achieng & Willy Muturi & Joshua Wanjare, 2018. "Effect of Equity Financing Options on Financial Performance of Non-Financial Firms Listed at the Nairobi Securities Exchange, Kenya," Applied Economics and Finance, Redfame publishing, vol. 5(4), pages 160-173, July.

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    More about this item

    Keywords

    Financial leverage; Capital structure; Return on Assets; Debt to Equity; Picking Order Theory;
    All these keywords.

    JEL classification:

    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • M16 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - International Business Administration
    • M19 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Other

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