Abstract
The aim of this study was to analyze the effects of profitability and debt-to-equity ratio on operating leverage in the case of companies listed on the Korea Exchange from 2000 to 2021. The analysis showed that the profitability and debt-to-equity ratio of companies in Korea rose with increasing operating leverage (fixed costs), and it is worth noting that a company’s cost structure affects its capital structure. There was a positive correlation between profitability and debt-to-equity ratio for Korean firms, which means that their capital structure can be explained by the pecking order theory. That is, the more profitable a company is, the more it prefers to raise funds through debt issuance rather than equity issuance. In the case of Korean companies with a relatively high dependence on debt, the increase in operating leverage for facility investment among other business activities mostly expands debt, and the higher the profitability, the higher the debt-to-equity ratio is.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
More From: International Journal of Business & Management Studies
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.