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Leverage as a determinant of return on equity whether firm size moderate Leverage ?return on equity relationship

Author

Listed:
  • SOBIA Quayyoum

    (Corvinus University of Budapest, Hungary)

  • Szabó, Zoltán

    (Corvinus University of Budapest, Hungary)

Abstract

The aimed of this study is to determine the impact of leverage on return on equity and to analyze whether the firm size affects as moderator in return on equity and leverage relationship. Theories have different views between debt and equity return relationship. Some advocate that the capital structure is irrelevant and some have opposite view as the leverage increase it not only increase the value of firm but also the wealth of equity holders. As when the sizes of firm increase it affect the capital structure of a firm. The regression equations were used to analysis the leverage equity relationship in Pakistan cement industry. The dependent variable was the return on equity and independent variable was leverage. Firm size used as a moderator in this study. The significant negative relationship was found in return on equity and leverage. Significant relationship was also found during the years of 2006, 2007 and 2008. The insignificant relationship was found in the period of 2009-10. Firm size used as a moderator which gives a highly significant result. It also check at three level of mean difference value of increase and decrease and found when the size increase relationship between return on equity and leverage also increase significantly. On the basis of analysis it was concluded as the firm size increase it increase the positive significant relationship between return on equity and leverage. The major contribution of this study is the introduction of the concept of moderation in identifying the relationship between leverage and determinants of capital structure. Therefore, the findings of this study will provide a novelty and useful insights about the structure and favorable composition of capital structure decisions to the finance managers.

Suggested Citation

  • SOBIA Quayyoum & Szabó, Zoltán, 2015. "Leverage as a determinant of return on equity whether firm size moderate Leverage ?return on equity relationship," Proceedings of International Academic Conferences 2503654, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:2503654
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    References listed on IDEAS

    as
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    3. Giacomo Morri & Christian Beretta, 2007. "The Capital Structure Determinants of REITs: Is it a Peculiar Sector?," ERES eres2007_368, European Real Estate Society (ERES).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Key Words: Return on equity; Leverage; Firm Size; Moderator; Capital structure.;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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