Leverage and Firm's Performance: Evidence from Selected Business Companies in Pakistan, Listed on Karachi Stock Exchange
Year: 2012
Type: preprint
Abstract: Leverage (debt) is very important concept from the perspective of the operational side of a firm. This research study tries to make an attempt to determine the relationship between different proxy variables of leverage (closely related to capital structure) and firm’s performance with special case of Textile, cement and chemical sector of Pakistan during 2003-2009. 70 companies were selected from these sectors listed on Karachi stock exchange. Various proxy variables such as DA (debts to Assets), DE (debts to equity), size and assets turnover ratio were measured by capital structure and performance of these firms was measured by ROA (return on assets), ROE (return on equity), PM (profit margin). Panel data obtained from these companies was analyzed using Fixed effect model. Regression used for the analysis shown negative insignificant relationship between DE and ROA, negative significant relationship between DA and ROA, positive significant relationship between ROA and asset turnover ratio, also positive significant between size and ROA. Similarly DE and ROE shown significant negative relation between each other. DE and ROE both are weakly negatively co-related while size and ROE are positively co-related. PM and DE have significant negative relationship.
Source: SSRN Electronic Journal
Author: S. M. Iqbal
Institution: Institute of Management Sciences Peshawar
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2270057909