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Financial Leverage and Firm Performance: An Empirical Review and Analysis

Author

Listed:
  • John Davies Odhiambo

    (Department of Accounting and Finance, Technical University of Mombasa, Kenya)

  • Christine Kanana Murori

    (Department of Accounting and Finance, Technical University of Mombasa, Kenya)

  • Catherine Elsa Aringo

    (Department of Accounting and Finance, Technical University of Mombasa, Kenya)

Abstract

This study examines the impact of financial leverage on firm performance and value, focusing on the trade-offs between debt and equity financing. By reviewing theoretical and empirical literature, including trade-off and pecking order theories, the paper highlights both the benefits of leverage in enhancing profitability and growth and the risks of excessive debt that may lead to financial distress. The findings emphasize the importance of maintaining an optimal capital structure to ensure long-term sustainability across firms and industries.

Suggested Citation

Handle: RePEc:cwk:eafjke:2025-02
DOI: 10.59413/eafj/v4.i1.2
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Keywords

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JEL classification:

  • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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