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Affect of financial leverage on firm performance. Empirical evidence from Karachi Stock Exchange

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  • Raza, Muhammad Wajid

Abstract

Using panel data analysis, we attempt to find the determinants of capital structure of KSE listed none-financial firms for the period 2004-2009. We first present some descriptive statistics on our selected variables. The most interesting finding of our descriptive statistics is the highest leverage ratio for textile industry whereas the average profitability of textile industry is negatives. The results of this study shows negative relation between performance and leverage. Long term debt is more expensive due to certain direct and indirect costs. Therefore employing high level of debt results low profitability. The result of second hypothesis shows no significance between leverage and profitability. On the basis of these findings it is concluded that profitability is consistent with picking order theory. In the light of above discussion we can say that the existing theories of capital structure contribute to some extent in decision making process.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50383.

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Date of creation: 01 Sep 2013
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Handle: RePEc:pra:mprapa:50383

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Keywords: Financial leverage; Capital structure; Return on Assets; Debt to Equity; Picking Order Theory;

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  1. Raza, Muhammad Wajid & Mohsin, Hasan M, 2011. "Financial liberalization and macroeconomic performance, empirical evidence from selected Asian countries," MPRA Paper 34559, University Library of Munich, Germany, revised 12 Oct 2011.
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