ANTECEDENTS TO THE SPEED OF ADJUSTMENT TOWARDS OPTIMAL LEVERAGE: A CASE OF BAGHDAD STOCK EXCHANGE (original) (raw)

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, 2021

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.

OPTIMIZING FINANCIAL LEVERAGE TO ENHANCE COMPANY PERFORMANCE AN EMPIRICAL ANALYSIS IN THE MSE OF OMAN

Tianjin Daxue Xuebao (Ziran Kexue yu Gongcheng Jishu Ban)/ Journal of Tianjin University Science and Technology, 2024

This research paper investigates the dynamic interplay between financial leverage and the performance enhancement in Omani companies, specifically those listed on the Muscat Stock Exchange. Employing a panel data analysis approach, the study utilizes secondary data extracted from the financial statements of selected listed companies covering the period from 2018 to 2022. The research specifically integrates three pivotal ratios—Solvency Ratio, Debt-to-Equity Ratio, and Proprietary Ratio—to systematically analyze their respective impacts on Return on Assets (ROA) and Return on Equity (ROE). Grounded in a thorough analysis of company data, this study not only offers insightful analyses of historical financial information but also integrates growth performance predictions by the researcher. These predictions aim to identify positive or negative correlations between financial leverage and overall corporate performance. The study's findings hold significant implications for strategic decision-making, capital structure optimization, and advancing the understanding of financial dynamics in the Omani business landscape

The Effect of Leverage on Financial Health of the Firms: A Study from Cement Industry of Pakistan

This research paper has tried to measure the relationship between leverage and profitability of firms in the cement industry of Pakistan. Debt to equity is used to measure the leverage of the companies in the cement industry in Pakistan. Short term debt to equity (STD/E) and long term debt to equity (LTD/E) are considered as leverage variables .Return on equity (ROE) and return on assets (ROA) are used to measure the financial performance of the companies. For this research paper 10 cement companies are considered, listed in the Karachi Stock Exchange during the time period 2008-2012. To measure the relationship between leverage and profitability of firms in the cement industry of Pakistan regression model and descriptive statistics have been used. Our results found negative and significant relationship between leverage and profitability of the firm. 1. Introduction Importance of the leverage can be seen from its presence in the capital structure of the organizations. It is important for the organizations to take decision of leverage portion in the capital structure. Debt financing not only minimizes the risk of the organization but also provide tax exemptions to the organization. Capital structure theory highlights the real importance and significance of the debt financing in the organizations. Leverage of the firm influence its capital structure. According to Myers (1984) leverage defines capital structure of the firms. Capital structure consists of debt and equity financing. It is one of the most difficult decisions for the management of the organizations to opt the mixture of debt and equity. Debt portion represent the other's claim and it reduces the risk of the owners (Eckbo, B.E., (1986). In this global world management is not an easy job because it has to take difficult decisions. Management of the company's remains conscious about the debt portion of the organizations because it affects the financial performance of the firms and the performance of the management is measured through the financial performance of the organizations. According to Black et al, (1973) Leverage affects not only the performance of the organizations but also it affects the market value of the organizations as well. Management of the debt financing is very crucial in the organization because companies are using the funds of creditors which have to be returned with interest. Financial leverage and operational leverage are the part of total leverage which affects the profits of the organizations, market value and stock price of the organizations (Denis et al, 2012). Financial leverage is cost saving and it also reduces the risk of the owners but it becomes costly when organizations are unable to use it efficiently. Companies have to pay financial charges on the leverage. If companies fail to use leverage effectively than they have to suffer from many problems because they have to return the amount of leverage with interest expenses. Profitable companies prefer to use leverage because it reduces the risk of owners and more cost saving for the shareholders of the organizations. Leverage affects the profitability which has direct impact on the management performance, capital structure, stock price, wealth of shareholder and all the stakeholders. Cost and benefits of the leverage are better discussed by different researchers whereas it is also explained in the trade-off theory. Combination of debt and equity and its impact on the organizational performance also need consideration because organizations are well familiar with its importance. Trade off theory is helpful for the top management of the organizations because they can take decisions through evaluating the cost and benefits of the organizations in different perspectives. Operational and financial both types of leverage can be assessed and used for taking better decisions. Optimum capital structure is necessary for achieving success and increasing financial performance of the organizations.

Determinant Variables on Leverage and Speed of Adjustment(Study in Indonesia Stock Exchange)

Journal of Applied Economics in Developing Countries, 2020

There have been many types of research on capital structure, however, those researches have not shown consistent results yet. This research aims to determine the effect of determinant variables of capital structure on leverage and speed of adjustment partially. The samples comprise 459 manufacturing companies listed in Indonesia Stock Exchange from 2009-2017. The statistic analysis utilized to test the hypothesis is multiple linear regression analysis. The test result shows that the determinant variables of capital structure have significant effects on leverage, and the partial effect of the determinant variables of capital structure (Profitability, Tangibility, Size, Growth Opportunity, and Income Variability) also has a significant effect. For the speed of adjustment, the size variable gives the biggest contribution compared to the other variables.

Financial leverage and firm performance: evidence from Amman stock exchange

2019

This study tests the relationship between financial leverage and firm performance. Previous studies found mixed results (e.g., Gill et al. 2011, Mouna et al. 2017, and Abubaker (2015). Some suggest including the effect of the firms' business strategy and the degree of competitiveness on the relationship between the financial leverage and the firms' performance. Data is subjected to pooled General Least Square to test the hypotheses of the study. Based on a sample from Amman Stock Exchange, the study finds that the financial leverage has a negative relationship with the firm performance proxies by ROA and EVA. In addition, the relationship between financial leverage and performance is more negative for the firms that use product differentiation strategy compared with the firms that use low-cost strategy and for the firms with a high degree of competitiveness compared with the firms with a low degree of competitiveness. Different tests including the Wald F-test on the linear r...

The Determinants of Leverage of Listed Companies

This aim of this paper is to empirically investigate the determinants of leverage of listed companies. The study sample included 121 listed companies on the Jordanian Stock Exchange extended from the period 2007 to 2010. The sample covered the industrial and services sectors while the financial sector was excluded from the study. For the data analysis, regression model was employed; the explanatory variables comprised of firm liquidity, size, growth rate, profit, and tangibility, whereas the independent variable was the leverage ratio. The results show that for both industrial and services sectors; there were no statistical significant relationship. When the two sectors were separated, the results for the industrial sector revealed that liquidity and tangibly have significant relationship with leverage, whereas the results for the services sector revealed that the growth rate, liquidity, and tangibility have significant relationship with leverage.

DETERMINANTS OF FINANCIAL LEVERAGE: AN EMPIRICAL EVIDENCE FROM PAKISTAN STOCK EXCHANGE

IAEME PUBLICAITON, 2021

The current study aimed to investigate the impact of several factors i.e. profitability, tangibility, size, growth, financial risk, liquidity, tax shield on firm’s financial leverage. The data was collected for a panel of 83 companies from 6 high performing sectors of Pakistan stock exchange from 2006 to 2016. The results of panel data analysis were compared for random effect, fixed effect and pooled regression models. The findings revealed that Profitability, Tangibility, Firm Size, Liquidity, Tax Shield and Tobin’s Q had a significant role in leverage decision of the sample firms while financial risk, business risk and growth were found to be insignificant. The fixed effect model was found to be more appropriate to explain the relationships. The implications of the results were also mentioned

Debt Policy and Corporate Performance: Empirical Evidence from Tehran Stock Exchange Companies

International Journal of Economics and Finance, 2012

The ability of companies in determining suitable financial policies to make investment opportunities is one of the most principal factors for the companies' growth and progression. Adopting a debt policy or a capital structure is considered as a momentous decision that influences the companies' value. This paper is aimed to investigate the probable relationship between debt policies (including Current Debt, Non-Current Debt, and Total Debt) and performance of Tehran Stock Exchange Companies. The regression model is applied to investigate the relationship between the performance indicators and debt ratios. In this research, financial performance indicators are considered as Gross Margin Profit, Return on Assets (ROA), Tobin's Q Ratio, and Debt Ratios (Current Debt, Non-Current Debt, and Total Debt). "size" and "growth rate" are considered as control variables. Results show that an increase in current debts, non-current debts, and total debts has a negative influence on the corporate performance. It was also found that companies that merely attempt to create assets through debts, without any attention to the company size and other important factors, are not able to have an excellent performance.

INVESTIGATING THE LEVERAGE COMPOSITION OF PAKISTANI FIRMS THROUGH THEIR DETERMINANTS

Journal of Management and Research, 3(1), 2016

To have an ideal mix of debt and equity in a balance sheet of an entity is till to date a very complicated issue for managers as there is no such rule to predict an optimal capital structure. An in-depth understanding is required for the corporate culture, the degree of the development of the capital market and the economy in which the firms operate. This study seeks to investigate the leverage composition of Pakistani corporations through their determinants. Fixed effect regression is used to show the relationship of determinants of capital structure on leverage corporations listed on Karachi Stock Exchange (KSE) for the period of 2006 to 2013. The results suggest that agency cost, growth, age, and size are significantly and negatively associated with the capital structure of Pakistan firms, however, collateral value of asset is significantly but positively associated with the capital structure of the firm. On the other hand, free cash flows, non debt tax shield, profitability, business risk and bankruptcy cost are not significantly associated with leverage composition of the firms and are against the signaling theory and peaking order theory. The key importance of this study is that no prior research was done for determinants like agency cost, free cash flows, bankruptcy cost and age as determinants of capital structure for Pakistani firms among other determinants. Further, this study does not confine to a particular sector rather it covers all companies listed by Karachi Stock Exchange.

Effect of Financial Leverage on Performance of the Firms: Empirical Evidence from Pakistan

SPOUDAI Journal of Economics and Business, 2015

This research finds the effect of financial leverage on efficiency of firms in Pakistan. The ordinary least square technique is used to detect efficiency of financial leverage of 154 textile firms in Pakistan over the period 2006-2011.The regression results indicate that leverage has s negative association with the efficiency of firms. Financial leverage is negatively associated with return of assets and equity, which shows that firms borrow less, while market-to-book ratio shows positive profitable association with firms. Consequently firms tend to borrow more and pay their contractual payments in time.