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Title: The Impact of Financial Leverage on Corporate Share Price Performance (2011 – 2015)
Authors: Madechavo, Tatenda
Keywords: share price perfomamce
financial leverage
Issue Date: May-2017
Publisher: Lupane State University
Abstract: This study seeks to provide evidence on the impact of financial leverage on share price performance. The primary objective of the study was to assess the impact of financial leverage on share price performance though the study also went on to assess the impact of the same on profitability. The analysis was implemented on a conveniently selected sample of 13 companies, quoted on the Zimbabwean Stock of Exchange (ZSE) for the period 2011-2015. The ordinary least squares method of regression was employed for the purposes of this this analysis. The result of the study reveals that financial leverage has a statistical significant negative impact on share price performance and a statistical insignificant negative impact on profitability. The statistically significant negative relationship between capital structure and share value depicts that the ZSE counters are generally operating at a point where tax benefits are lower than the bankruptcy costs. As such a unit increase in financial leverage therefore results in a significant drop in share value. The statistically insignificant negative relationship between capital structure and ROA depicts that, as firms’ increase their financial leverage a potential to loss of revenues may arise as more money is spent in debt servicing rather than in production, revenue generation or any other profit maximisation techniques. The debt sources used by the ZSE counters seems to be so costly to the companies’ such that the costs even cuts into their net income. The study therefore concludes that, by manipulating capital mixes, financial managers may maximise shareholder wealth as well as profitability within their organisations.
Appears in Collections:Department of Accounting and Finance

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