This paper investigates the existence of an optimal debt ratio for the electronic listed firms in Taiwan, using balanced panel data for a sample of 143 selected electronics companies listed in the Taiwan Stock Exchange (TSE) from the first quarter of 1999 to the third quarter of 2004. The result shows that there is a single threshold effect of debt ratio on firm value when return on equity (ROE) is used to proxy firm value. Furthermore, based on our combined findings of ROE and earnings per share (EPS) triple threshold estimations, we find that the appropriate debt ratio range for the electronic listed firms in Taiwan should not be over 51.57 percent or below 12.37 percent. To ensure and enhance the firm's value, the optimal range of debt ratio should be within 12.37 percent and 28.70 percent. The implications of the findings for financial managers and shareholders' welfare are discussed.
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