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The Effect of Financial Leverage and Market Size on Stock Returns on the Ghana Stock Exchange: Evidence from Selected Stocks in the Manufacturing Sector

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  • Prince Acheampong
  • Evans Agalega
  • Albert Kwabena Shibu

Abstract

In this paper we investigate the effect of financial leverage and market size of selected stocks on stock returns. Ordinary Least Square (OLS) regression methods were used to model the relationship between the dependent variable and the independent variables. The leverage of the selected firms were estimated from the annual financial reports covering a period of five years (i.e.2006-2010) of selected five corporations operating in the manufacturing sector. Furthermore, average monthly stock prices of the selected stocks between 2006-2010 for Unilever, Pioneer Kitchenware, PZ Cussions, Aluworks and Camelot making up the five selected companies were used. The study established a negative and significant relationship between leverage and stock return when the overall industrial data is used. However at the individual firm level the relationship was not stable. Four out of the five selected companies (i.e. PZ, Unilever, Aluworks and Camelot) all had associated leverage coefficients to be negative. Pioneer Kitchenware however, had positive leverage coefficient. The study also found the relationship between Size and stock returns to be positive and significant. The size effect within the manufacturing sector was however very limited.

Suggested Citation

  • Prince Acheampong & Evans Agalega & Albert Kwabena Shibu, 2014. "The Effect of Financial Leverage and Market Size on Stock Returns on the Ghana Stock Exchange: Evidence from Selected Stocks in the Manufacturing Sector," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(1), pages 125-134, January.
    • Handle: RePEc:jfr:ijfr11:v:5:y:2014:i:1:p:125-134
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    References listed on IDEAS

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    Cited by:

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    4. Kamilu Adio SAKA & Olukunle Ibukun FATOGUN, 2021. "Capital Structure and Value of Nigerian Manufacturing Companies," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 5(1), pages 81-95.
    5. Khaled Lafi Alnaif, 2014. "Stock Liquidity Determination Evidence from Amman Stock Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(12), pages 1894-1905, December.
    6. Michael Nana Owusu-Akomeah & Joseph Asare & Emmanuel Atta Kumah & Stephen Owusu Afriyie, 2022. "Holistic Analysis of the Relationship Between Capital Structure and Stock Price of Consumer Staples," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 12(2), pages 38-60.
    7. Sunday Olugboyega KAJOLA & Adeniyi ALAO & Wasiu Abiodun SANYAOLU & Olalekan Jubril OJURONGBE, 2019. "Effect Of Liquidity And Leverage On Financial Performance Of Nigerian Listed Consumer Goods Firms," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 4(3), pages 91-102.

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