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

Nirmol Chandra Das (Finance, Insurance and Real Estate, The University of Memphis , Memphis, Tennessee, USA)
Mohammad Ashraful Ferdous Chowdhury (Department of Business Administration, Shahjalal University of Science and Technology , Sylhet, Bangladesh)
Md. Nazrul Islam (Department of Business Administration, Shahjalal University of Science and Technology , Sylhet, Bangladesh)

South Asian Journal of Business Studies

ISSN: 2398-628X

Article publication date: 19 February 2021

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Abstract

Purpose

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/approach

A 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.

Findings

GMM 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/implications

The study is confined to only the listed nonfinancial joint-stock companies of Bangladesh.

Practical implications

The 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/value

This is one of the first in-depth attempts to find the nonlinear heterogeneous effect of leverage on firms' performance.

Keywords

Acknowledgements

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Citation

Das, N.C., Chowdhury, M.A.F. and Islam, M.N. (2021), "The heterogeneous impact of leverage on firm performance: empirical evidence from Bangladesh", South Asian Journal of Business Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/SAJBS-04-2020-0100

Publisher

:

Emerald Publishing Limited

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