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The heterogeneous impact of leverage on firm performance: empirical evidence from Bangladesh

The heterogeneous impact of leverage on firm performance: empirical evidence from Bangladesh The purpose of this study primarily is to investigate the heterogeneous effect of leverage on performance of the listed nonfinancial joint stock companies in Bangladesh.Design/methodology/approachA large panel sample of 165 listed nonfinancial firms under different industries of Bangladesh studied for the period 2007–2016 employing the dynamic panel approaches, namely, differenced generalized method of moments (GMM) and system GMM. The asymmetric relationship between leverage and performance is also examined by quantile regression approach.FindingsGMM showed that the leverage indicators have the negative impact on the performance of the firms in terms of return on equity and return on asset while the quantile regressions revealed the heterogeneous relationship between leverage and profitability. It showed that greater negative impact of leverage on performance in high-profitable firms than low-profitable firms.Research limitations/implicationsThe study is confined to only the listed nonfinancial joint-stock companies of Bangladesh.Practical implicationsThe asymmetric relationship between leverage and financial performance identified in this study would be the helpful tool for financial managers for optimal capital structure decisions.Originality/valueThis is one of the first in-depth attempts to find the nonlinear heterogeneous effect of leverage on firms' performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png South Asian Journal of Business Studies Emerald Publishing

The heterogeneous impact of leverage on firm performance: empirical evidence from Bangladesh

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2398-628X
DOI
10.1108/sajbs-04-2020-0100
Publisher site
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Abstract

The purpose of this study primarily is to investigate the heterogeneous effect of leverage on performance of the listed nonfinancial joint stock companies in Bangladesh.Design/methodology/approachA large panel sample of 165 listed nonfinancial firms under different industries of Bangladesh studied for the period 2007–2016 employing the dynamic panel approaches, namely, differenced generalized method of moments (GMM) and system GMM. The asymmetric relationship between leverage and performance is also examined by quantile regression approach.FindingsGMM showed that the leverage indicators have the negative impact on the performance of the firms in terms of return on equity and return on asset while the quantile regressions revealed the heterogeneous relationship between leverage and profitability. It showed that greater negative impact of leverage on performance in high-profitable firms than low-profitable firms.Research limitations/implicationsThe study is confined to only the listed nonfinancial joint-stock companies of Bangladesh.Practical implicationsThe asymmetric relationship between leverage and financial performance identified in this study would be the helpful tool for financial managers for optimal capital structure decisions.Originality/valueThis is one of the first in-depth attempts to find the nonlinear heterogeneous effect of leverage on firms' performance.

Journal

South Asian Journal of Business Studies – Emerald Publishing

Published: Apr 15, 2022

Keywords: Heterogeneous impact; Leverage; Firm performance; Dynamic GMM; Quantile regression; Joint-stock company

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