Financial leverage and corporate performance: does the duration of the debt ratio matters?
by Kingsley Opoku Appiah; Prince Gyimah; Yakubu Abdul-Razak
International Journal of Business and Emerging Markets (IJBEM), Vol. 12, No. 1, 2020

Abstract: This paper examines the relationship between financial leverage and performance of listed firms in an emerging market, Ghana. Specifically, we examine the link between short-term, long-term and total debts on performance. We use data of 190 firm-year observations from 19 listed firms over a period of ten years (2005-2014). Fixed and random effects regression models are used to examine the financial leverage-corporate performance nexus. The result shows that total debt to total assets is negatively related to accounting and market performance. Short-term debt to total assets is also negatively related to return on assets and Tobin's Q but not return on equity. The long-term debt to total assets is negative and insignificantly related to corporate performance. Our contribution is that; short-term debt diminishes shareholder value in the developing economy context.

Online publication date: Wed, 01-Apr-2020

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