Authors: Nabila Nisha; Bikramaditya Ghosh
Addresses: Department of Accounting and Finance, School of Business and Economics, North South University, Bashundhara, 1229 Dhaka, Bangladesh ' Department of Finance, Institute of Management, Christ University, Hosur Road, Bengaluru, 560029 Karnataka, India
Abstract: To magnify shareholders' returns, managers employ the use of debt in the firms' capital structure. However, excessive debt financing can often cause financial distress for the firms. In fact, various debt equity ratio levels may lead to different financial performance when compared for high levered and low levered firms. Thus, the aim of this paper is to examine the cause and effect relationship between financial leverage and financial performance of firms. To pursue the purpose, a purposive sample of 163 non-financial firms listed on the Dhaka Stock Exchange (DSE) was selected to conduct this study. Findings indicate that there was no significant difference in the financial performance between high levered and low levered firms, neither in terms of their size nor growth rates. A negative relationship therefore persists between leverage and performance of such firms. Implications of these findings can provide policy guidelines for managers and directions for any further work in this context.
Keywords: leverage; performance; capital structure; growth rates; firm size; levered firms; Bangladesh.
International Journal of Business and Globalisation, 2018 Vol.20 No.1, pp.31 - 49
Received: 10 May 2016
Accepted: 09 Jul 2016
Published online: 05 Dec 2017 *