THE IMPACT OF FIRM LEVERAGE ON STOCK RETURN IN MANUFACTURING INDUSTRY
DOI:
https://doi.org/10.33736/uraf.1978.2019Abstract
This paper seeks to provide evidence on the impact of firm’s leverage on its stock return. The analysis was implemented on the 30 manufacturing companies listed on Bursa Malaysia. The selected companies were estimated from the annual financial reports covering a period of five years (2011-2015). The random effects GLS regression was employed in carrying out this analysis. The result of the study reveals that only one variable which is short term debt has enough evidence and significant negatively related to stock return. However, other variables such as long-term debt, total debt to equity and firm size are found to be irrelevant with stock return.
References
Abdullah, N. M., Parvez, K., Karim, T., & Tooheen, B. R. (2015). The impact of financial leverage and market size on stock returns on the Dhaka stock exchange: Evidence from selected stocks in the manufacturing sector. International Journal of Economics, Finance and Management Sciences, 3(1), 10-15.
https://doi.org/10.11648/j.ijefm.20150301.12
Acheampong, P., Agalega, E., & Shibu, K. A. (2014). The effect of financial leverage and market size on stock returns on the Ghana stock exchange: Evidence from selected stocks in the manufacturing sector. International Journal of Financial Research, 5(1), 125-134.
https://doi.org/10.5430/ijfr.v5n1p125
Ahmeti, F., & Prenaj, B. (2015). A critical review of Modigliani and miller's theorem of capital structure. International Journal of Economics, Commerce and Management, 3(6), 914-924.
Antwi, S., Mills, E. F. E. A., & Zhao, X. (2012). Capital structure and firm value: Empirical evidence from Ghana. International Journal of Business and Social Science, 3(22), 103-111.
Birjandi, H., Hakemi, B., & Sadeghi, M. M. M. (2015). The study effect agency theory and signaling theory on the level of voluntary disclosure of listed companies in Tehran stock exchange. Research Journal of Finance and Accounting, 6(1), 174-183.
BNM report finds corporate leverage of Malaysian firms below global financial crisis level. (2015, March 11). Malay Mail Online. Retrieved from http://www.themalaymailonline.com/money/article/bank-negara-corporate-leverage-of-malaysian-firms-below-global-financial-cr
Boadi, K. E., & Yao, L. (2015). An empirical analysis of leverage and financial performance of listed non-financial firms in Ghana. International Journal of Economics and Finance, 7(9), 120-135.
https://doi.org/10.5539/ijef.v7n9p120
Chen, J. L., & Chen, Y. S. (2011). How the Pecking-order theory explain capital structure. Journal of International Management Studies, 6(3), 92-100.
Daly, H. (2015). Conflicts of interest in agency theory: A theoretical overview. Global Journal of Human-Social Science: Economics, 15(1). Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwj7wJLniv7QAhXKPo8KHV0aAxIQFggZMAA&url=https%3A%2F%2Fglobaljournals.org%2FGJHSS_Volume15%2F2-Conflicts-of-Interest-in-Agency.pdf&usg=AFQjCNH6fXW84oXBwuaOwtc7Rx_y6pP24g&sig2=hJapKrpIFg-cUQLh5Tx78g
Habib, J. H., Khan, F., & Wazir, I. M. (2016). Impact of debt on profitability of firms; Evidence from non-financial sector of Pakistan. City University Research Journal, 6(1), 70-80.
Miglo, A. (2012). Managers versus students: New approach in improving capital structure education. Journal of Education and Vocational Research, 3(11), 353-369.
https://doi.org/10.22610/jevr.v3i11.89
Muhib Islam. (2014). Agency theory. Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwijisDPi_7QAhULQI8KHUwACv8QFggZMAA&url=http%3A%2F%2Fwww.slideshare.net%2Fmuhibnash%2Fagency-theory-36263676&usg=AFQjCNEZIt4ROhzsinuWRmINphDbW0oS4A&sig2=LreRM5ugBwyFOh9FbISczA
Namazi, M. (2013). Role of the agency theory in implementing management's control. Journal of Accounting and Taxation, 5(2), 38-47.
https://doi.org/10.5897/JAT11.032
Nguyen, T., & Nguyen, C. H. (2015). Capital structure and firms' performance: Evidence from Vietnam's stock exchange. International Journal of Economics and Finance, 7(12), 1-10.
https://doi.org/10.5539/ijef.v7n12p1
Nguyen, T., & Schubler, A. (2013). Leverage, maturities of debt and stock performance. The International Journal of Banking and Finance, 10(1), 74-93.
https://doi.org/10.32890/ijbf2013.10.1.8469
Niresh, A. J., & Velnampy, T. (2014). Firm size and profitability: A study of listed manufacturing firms in Sri Lanka. International Journal of Business and Management, 9(4), 57-64.
https://doi.org/10.5539/ijbm.v9n4p57
Olaniyi, T. A., Elelu, M. O., & Abdulsalam, T. S. (2015). Impact of capital structure on corporate performance: A pre and post crisis evaluation of selected companies in US. International Journal of Accounting Research (IJAR), 2(8), 1-20.
https://doi.org/10.12816/0017352
Penman, H. S., Richardson, A. S., & Tuna, I. (2007). The book-to-price effect in stock returns: Accounting for leverage. Journal of Accounting Research, 45(2), 427-467.
https://doi.org/10.1111/j.1475-679X.2007.00240.x
Shafana, M., Rimziya, F. A., & Jariya, I. A. (2013). Relationship between stock returns and firm size, and book-to-market equity: Empirical evidence from selected companies listed on milanka price index in colombo stock exchange. Journal of Emerging Trends in Economics and Management Sciences, 4(2), 217-225.
Shahar, S. W. S., Shahar, S. W. S., Bahari, F. N., Ahmad, W. N., Fisal, S., & Rafdi, J. N. (2015). A review of capital structure theories: Trade-off theory, pecking order theory and market timing theory. Proceeding of the 2nd International Conference on Management and Muamalah (pp. 240-247). Selangor, Malaysia: Kolej Universiti Islam Antarabangsa Selangor.
Shyam-Sunder, L., & Myers, C. S. (1999). Testing static tradeoff against pecking order models of capital structure. Journal of Financial Economics, 51, 219-244.
https://doi.org/10.1016/S0304-405X(98)00051-8
Tahmoorespour, R., Ali-Abbar, M., & Randjbaran, E. (2015). The impact of capital structure on stock returns: International evidence. Hyperion Economic Journal, 1(3), 56-78.
The World Bank. (2016). Domestic credit to private sector (% of GDP). Retrieved from http://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS?locations=MY&view=chart
Qureshi, A. M., Sheikh, A. N., & Khan, A. A. (2015). A revisit of pecking order theory versus trade-off theory: Evidence from Pakistan. Pakistan Journal of Commerce and Social Sciences, 9(2), 344-355.
Downloads
Published
How to Cite
Issue
Section
License
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.
