Firm Size as Moderator to Non-Linear Leverage-Performance Relation: An Emerging Market Review

Umar Farooq; Ali Qamar Jibran

doi:10.21512/bbr.v8i2.1711

Authors

Umar Farooq National University of Computer & Emerging Sciences
Ali Qamar Jibran Comsats Institute of Information Technology, Lahore

DOI:

https://doi.org/10.21512/bbr.v8i2.1711

Keywords:

leverage, performance, capital structure, moderation, firm size

Abstract

The purpose of this research was to investigate leverage-performance relation with moderating firm size in developing countries like Pakistan. Data were collected from 304 Pakistani non-financial firms for the period of 2005-2013. It is found that overall leverage-performance relation is negative for all types of firms. However,
such losses are more prominent for small size firms. Results also show that the leverage-performance relation is nonlinear for medium and large size firms. However, these firms are not targeting optimal level and overleveraging that ultimately decrease their profits. So, financial managers of small size firms should avoid debt financing while for large and medium size firms, managers need to adjust their debt ratio to its optimal level.

Dimensions

Plum Analytics

Author Biographies

Umar Farooq, National University of Computer & Emerging Sciences

Lecturer

National University of Computer & Emerging Sciences, Faisalabad, Pakistan

Ali Qamar Jibran, Comsats Institute of Information Technology, Lahore

Assistant Professor

Comsats Institute of Information Technology, Lahore

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