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The Impact of Leverage Levels on Firm’s Performance and Profitability: a case of Pakistani Industries

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  • Waqas Rasool
  • Farheen Kayani
  • Mohsin Zafar

Abstract

This paper examines the relationship between the leverage levels, performance and profitability of the 19 Pakistanis firms with in three sectors, commercial banking, cement and fertilizer sector starting from 2004 to 2010. The purpose was to check the trends which are being followed by these industries and how much their capital structure policy is dynamic and relating to their sale, earnings, performance and stock values. Arithmetic Mean (A.M), standard derivation (S.D) were used to check the trend of data and then correlation was used sector wise to check the relationship of dependent and independent variables. At the end Regression test was employed on data .Study finds that there is relationship between leverage ratio i.e. DTCM (independent variable) and its determinants i.e size, tangibility, return on asset and RET except cash. A debt does not represent a suitable form of financing with value-enhancing investment projects of the firms, as an alternative, such firms issue equity. On the other hand, when there is a lack of profitable projects, a firm prefers issuing debts and increasing dividends. Management can increase the performance and profit indicators just by changing the debt equity structure.

Suggested Citation

  • Waqas Rasool & Farheen Kayani & Mohsin Zafar, 2011. "The Impact of Leverage Levels on Firm’s Performance and Profitability: a case of Pakistani Industries," Information Management and Business Review, AMH International, vol. 3(5), pages 242-249.
    • Handle: RePEc:rnd:arimbr:v:3:y:2011:i:5:p:242-249
    DOI: 10.22610/imbr.v3i5.940
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    References listed on IDEAS

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