Leverage, Ownership Structure and Firm Performance

Javid Ali,Muhammad Tahir,Shahbaz Tariq,Farman Ullah,Imran Khan,Wilayat Shah,Yasmeen Tahira,Muhammad Amir

doi:10.4236/jfrm.2022.111002

Abstract

This study has been conducted to investigate the relationship between the leverage, ownership structure and firm performance. The study used accounting based measured to measure the performance, which is return on assets (ROA) and return on equity (ROE) as dependent variables, while leverage, ownership proxies and other control variables as independent variables. The ownership proxies included the managerial ownership, institutional ownership and family owned ownership while the control variables included the size of the firm and net income of the selected firms. This study has used panel data analysis while using data of 70 firms listed on Pakistan Stock Exchange, for the years 2010 to 2016. This study found negative but statistically significant relationship of leverage on firm performance with both ROA and ROE. Similarly managerial ownership, institutional ownership and family owned ownership have negative but statistically significant relationship with performance on listed companies Pakistan stock exchange.

Highlights

Leverage is a measurement which shows how much the firm assets are financed by debts which is measured by total debts divided by total assets
This study investigates the impact of leverage and ownership structure on firm performance in presence of Pakistan Stock Exchange by applying statistical tools
The sample size of this study consist of nine MENA countries included (Egypt, Bahrain, Qatar, Kuwait, Tunisia, UAE, Morocco, Oman, and jordan) for the year 2014. They measured the performance on proxies by return on assets, return on equity and Tobin-Q, their results show that the block holders, insider equity holders and state ownership plays an important roles in the performance of the firm so, the results suggest that insider ownership has negative effects on the firms’s performance, which is measured by ROA, ROE and Tobin-Q, and on other hand, block holders ownership effect the financial performance positively

Summary

Introduction

Leverage is a measurement which shows how much the firm assets are financed by debts which is measured by total debts divided by total assets. Financial leverage is a proportion of an organization by using borrowed money from the ex-. It is the capacity of an organization in which a company uses fixed income securities such as debt and equity. High leverage indicates that the debts use more than equity, if the debts used more than equity it will lead to increase the financial cost as a result. In case of high Finance cost earning per share is affected negatively

Methods

Results

Conclusion