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This paper aims to investigate how the relation between stock returns of US firms and West Texas Intermediate (WTI) oil prices is affected by leverage from 1990 to 2020.

This paper examines how the relationship between stock returns of US firms and WTI oil prices is affected by leverage from 1990 to 2020 using a fixed-effect model estimation framework.

Results from the fixed-effect regression models suggest that leverage effects on stock returns are pervasive both in aggregate and cross-industry levels, while the mining industry is more sensitive. In addition to the positive oil price effects attenuated by leverage at the aggregate level, the authors observe stronger marginal effects of leverage only for the mining sector. Being more exposed to commodity prices, the positive effects of oil prices on stock returns in the mining sector are offset by large debt ratios. Asymmetries, effects of debt maturity structure and implications are also discussed.

This study is grounded on the contemporary cash flow claim of leverage NOT on the long-run effect of leverage considering cash flow constraints. The oil price increase is assumed to represent an advancement of the overall economy. This study does not capture the oil prices response to some other economic forces and vice-versa.

Mining companies should therefore reduce the stock of debt with respect to their assets to make possible the “pass-through” from oil prices to the stock market.

Previously undocumented and the authors show that leverage reduces the total effect of oil prices on stock returns, consistent with the hypothesis. Asymmetric and debt maturity structures effects are also discussed.

As of 2022, the scope of the engagement and interest of debt capital providers in ESG reporting is mainly untapped. However, a vast amount of literature has produced conflicting findings about the importance of debt capital (leverage) as a factor in sustainability reporting (SR). This is the first meta-analysis reconciling the mixed results of 85 single country studies containing 131 effect sizes across 24,482 firms conducted over past three decades (1999–2022) investigating the influence of leverage on SR. The study emphasizes the significance of contextualizing research by identifying the macro-environmental elements modifying debt's impact on SR, through the use of the institutional theory. Eleven country variables were tested on the collected dataset, spread across 36 countries.

Meta-analysis technique for aggregation of existing extant empirical work. Continuous and categorical variable-based moderator analysis to demystify the influence of country characteristics affecting the leverage–SR relationship.

Results show positive significant impact of debt capital providers on SR. Country's level of development, GDP, extent of capital constraints in a country, financial sector development within a nation, country governance factors and corruption levels, country's culture, number of sustainability reporting instruments operational in a country and geographical location proved to be significant moderators.

The study details relevant meaningful research gaps, worthy of uptake by researchers to produce targeted research.

Governments must increasingly go beyond their mandated disclosure role and acknowledge the important institutional factors that have contributed to the expansion of ESG reporting through the creation of nation-specific tools, incentive structures and disclosure-encouraging regulations. To secure a steady flow of funding and prevent negative effects on company value and cost of capital in the midst of prolonged global economic upheaval, businesses must address the information requirements of lenders. The limited total effect size emphasizes the necessity for debt providers to step up their ESG activism and exercise their maximum power and potential in stimulating extensive SR firm-level practices.

The present study is the first meta-analysis reconciling the mixed results of 85 single-country studies containing 131 effect sizes across 24,482 firms conducted over the past three decades (1999–2022) investigating the influence of leverage on SR and demystifying the macro-environmental factors affecting the leverage–SR association.

The purpose of this study is to look at the effect of financial leverage on the performance of Saudi listed companies. It particularly proposes to examine the heterogeneity of this relationship depending on firm profitability and firm size.

The paper uses a sample of 120 nonfinancial companies listed on the Tadawul stock exchange during the period 2017–2020. Data is obtained from the companies’ financial reports. This study uses the system GMM and the quantile regression. The first methodology examines the effect of leverage decisions on firm performance, whereas the second one tests the heterogeneity of this relationship.

GMM results demonstrate the adverse effect of leverage on firm performance in terms of return on assets, return on equities and Tobin’s Q. Besides, quantile regression results show that this relationship is heterogeneous. Particularly, leverage seems to have a greater adverse effect on the performance of high-profitable firms than low-profitable firms. Moreover, leverage has a negative effect in larger firms, whereas the influence becomes negative in smaller ones.

This study is unique in that it approaches the capital structure issue from a different perspective, where the leverage decision is distinctly considered at various levels of firm profitability and firm size. In addition, the majority of the existing studies is carried out in developed countries. However, the results might not apply to emerging countries given the specificity of their institutional structure. In this regard, Saudi Arabia has a distinctive business climate characterized by the absence of corporate tax and an illiquid bond market.

The study seeks to find the effect of financial leverage on the firm performance of non-financial companies listed in the Tokyo stock market.

The study collected data from 263 companies in the automobile and industrial producer sectors listed on the Tokyo stock exchange between 2001 and 2021. The generalized method of moments was used to estimate the effect of leverage on financial performance due to its ability to overcome the problems of endogeneity and autocorrelation.

The study found that the equity multiplier has a positive and statistically significant effect on return on assets (ROA), return on equity (ROE) and earning per share (EPS). The study discovered that the interest coverage ratio has a positive and statistically significant effect on ROA, ROE, EPS and Tobin’s Q. The results revealed that the degree of financial leverage and debt to earnings before interest, taxes, depreciation and amortization (EBITDA) have a negative and statistically significant effect on ROE, EPS and Tobin’s Q. The study also found that the capitalization ratios of the firms have a negative and statistically significant effect on ROA, ROE, EPS and Tobin’s Q.

The use of debt financing, which presents financial leverage, indicates that the companies can make enough earnings to pay off the interest and principal (debt service obligations), which were shown by the interest coverage ratio, as well as to pay all the long-term fixed expenses, which were shown by the fixed charge coverage ratio. Interest and fixed charge coverage have a positive statistically significant effect on the financial performance of automobile and industrial producer companies.

The study focused on the effect of financial leverage on financial performance by relying on pecking and trade-off theories to contribute to the existing body of literature in finance.

The purpose of this article is to examine how financial distress risk and currency crisis affect the relationship between financial leverage and financial performance.

This study uses data of 200 firms listed on Istanbul Stock Exchange during the period from 2009 to 2019, resulting in 1950 firm-year observations. Pooled ordinary least squares, random effects, firm fixed effects and two-step system GMM models are used to investigate the hypotheses of this study.

The results reveal that financial leverage has negative and significant effect on financial performance, and that this effect is stronger for firms with higher financial distress risk. Furthermore, the findings provide moderate evidence that currency crisis exacerbates the negative association between leverage and performance.

The results of this study have important implications for firms in emerging markets. Managers can enhance firm performance by reducing the level of financial leverage, especially in firms with higher financial distress risk. These firms incur higher debt costs, and then they can benefit more from the decreases in debt ratio in their capital structure. Moreover, the decreases in debt level have more importance in currency crisis times, when the access to external finance becomes more expensive and more difficult.

To the author's knowledge, this research is the first to examine the effect of currency crisis on the financial leverage–financial performance relationship and is one of few that investigate the role of financial distress risk in determining the linkage between leverage and firm performance.

The purpose of this study is to examine the evidences of leverage effects on the conditional volatility of exchange rates because of asymmetric innovations and its spillover effects among the exchange rates of selected emerging and growth-leading economies.

The empirical analysis uses the sign bias test and asymmetric generalized autoregressive conditional heteroskedasticity (GARCH) models to capture the leverage effects on conditional volatility of exchange rates and also uses multivariate GARCH (MGARCH) model to address volatility spillovers among the studied exchange rates.

The study finds substantial impact of asymmetric innovations (news) on the conditional volatility of exchange rates, where Russian Ruble is showing significant leverage effect followed by Indian Rupee. The exchange rates depict significant mean spillover effects, where Rupee, Peso and Ruble are strongly connected; Real, Rupiah and Lira are moderately connected; and Yuan is the least connected exchange rate within the sample. The study also finds the assimilation of information in foreign exchanges and increased spillover effects in the post 2008 periods.

The results probably have the implications for international investment and asset management. Portfolio managers could use this research to optimize their international portfolio. Policymakers such as central banks may find the study useful to monitor and design interventions strategies in foreign exchange markets keeping an eye on the nature of movements among these exchange rates.

This is one of the few empirical research studies that aim to explore the leverage effects on exchange rates and their volatility spillovers among seven emerging and growth-leading economies using advanced econometric methodologies.

This study aims to analyze the impact of corporate governance on firms’ external financing decisions in the Middle East and North Africa (MENA) region.

The authors analyzed a unique set of panel data comprising 2,425 nonfinancial firms whose shares are traded on stock exchanges in countries in the MENA region. The authors fitted an ordinary least squares model to estimate the regression coefficients. The authors performed a sensitivity analysis using alternative measures of the critical variables and an endogeneity analysis using instrumental variable methods with plausible external instruments.

The results revealed that corporate governance characteristics of firms are strongly associated with their degree of leverage. They also showed that macrofinancial conditions, financial regulations, corporate governance enforcement and social conditions mitigate the impact of corporate governance on firms’ financing decisions.

A larger sample size will further improve the results; however, this is difficult and depends on the extent to which increasing disclosure practices allow more corporate information to reach international databases.

This study provides new evidence on the role of corporate governance on firms’ financing decisions and documents the essential mitigating role of institutions, alerting managers to consider them.

This study is a novel attempt. Based on information from different data sources, this study explored the predictive power of corporate governance, ownership structures and other firm-specific characteristics in explaining corporate leverage in MENA countries. Overall, the analysis provides new evidence of the association between corporate governance and capital structure in the MENA region, highlighting the critical role of institutions.

The objective of this paper is twofold: first, to model the value of the firm in the presence of contingent capital and multiple growth options over its life cycle in a stochastic universe to ensure financial stability and recover losses in case of default and second, to clarify how contingent convertible (CoCo) bonds as financial instruments impact the leverage-ratio policies, inefficiencies generated by debt overhang and asset substitution for a firm that has multiple growth options. Additionally, what is its impact on investment timing, capital structure and asset volatility?

The current paper elaborates the modeling of a dynamic problem with respect to the interaction between funding and investment policies during multiple sequential investment cycles simultaneously with dynamic funding. The authors model the value of the firm in the presence of contingent capital that provides flexibility in dealing with default risks as well as growth options in a stochastic universe. The authors examine the firm's closed-form solutions at each stage of its decision-making process before and after the exercise of the growth options (with and without conversion of CoCo) through applying the backward indication method and the risk-neutral pricing theory.

The numerical results show that inefficiencies related to debt overhang and asset substitution can go down with a higher conversion ratio and a larger number of growth options. Additionally, the authors’ analysis reveals that the firm systematically opts for conservative leverage to minimize the effect of debt overhang on decisions so as to exercise growth options in the future. However, the capital structure of the firm has a substantial effect on the leverage ratio and the asset substitution. In fact, the effect of the leverage ratio and the risk-shifting incentive will be greater when the capital structure changes during the firm's decision-making process. Contrarily to traditional corporate finance theory, the study displays that the value of the firm before the investment expansion decreases and then increases with asset volatility, instead of decreasing overall with asset volatility.

The study’s findings reveal that funding, default and conversion decisions have crucial implications on growth option exercise decisions and leverage ratio policy. The model also shows that the firm consistently chooses conservative leverage to reduce the effect of debt overhang on decisions to exercise growth options in the future. The risk-shifting incentive and the debt overhang inefficiency basically decrease with a higher conversion ratio and multiple growth options. However, the effect of the leverage ratio and the risk-shifting incentive will be greater when the capital structure changes during the firm's decision-making process.

The firm's composition between assets in place and growth options evolves endogenously with its investment opportunity and growth option financing, as well as its default decision. In contrast to the standard capital structure models of Leland (1994), the model reveals that both exogenous conversion decisions and endogenous default decisions have significant implications for firms' growth option exercise decisions and debt policies. The model induces some predictions about the dynamics of the firm's choice of leverage as well as the link between the dynamics of leverage and the firm's life cycle.

This paper aims to investigate the impact of leverage on the total shareholder return of European publicly traded real estate vehicles in three periods: Crisis Period (2007-2009), Rebound Period (2009-2014) and the Whole Period.

Cross-sectional analysis is used and the leverage effect on the performance is controlled for seven other independent variables (local market risk premium, size, book-to-market, short-term debt, cash); moreover, regional differences are accounted for.

It is established that during the Crisis Period, leverage levels are negatively associated with performance: this relationship also holds throughout the Whole Period, implying that for real estate securities, the cost of financial distress is larger than the potential gain from taxation, although the economic significance of it is limited. The Fama and French (1992) three factors, including size, book-to-market and local market risk premium, are found to be relevant, which is consistent with the literature. In addition, the UK and Sweden regions are identified as significant.

Even if there is sizeable body of literature on determinants of leverage and determinants of asset returns, little work has been done on how leverage affects the returns of European real estate companies. In addition, this paper takes advantage of observations from a full economic cycle and the possible effects of the crisis period.

Prior literature has shown that, theoretically, holding-period returns of a leveraged exchange-traded fund (LETF) are generally negatively affected by the volatility of the underlying benchmark’s daily returns, particularly for long holding periods. However, recent empirical studies simulate LETFs’ returns using historical benchmark returns and report results that are not entirely consistent with the theoretical predictions, leading to the possibility that the distribution of real-world returns may have certain characteristics that influence the outcomes. In this paper, the authors examine how asymmetric volatility affects LETFs’ performance and provide detailed explanations for the behavior of the performance of LETFs under different market conditions.

The authors conduct simulation analyses on a +3x LETF and a −3x LETF based on historical S&P 500 stock index returns, with asymmetric volatility incorporated into the model.

By incorporating the asymmetric volatility effect, the simulation results suggest that, contrary to the theoretical predictions, higher volatility does not always lead to more negative impact on LETFs’ performance. Rather, the performance depends on the market conditions under which high volatility occurs. The findings therefore help reconcile prior theoretical predictions with reported empirical findings.

The analysis adds to the literature by incorporating the asymmetric volatility effect of stock returns in studying LETFs’ performance. The authors also provide detailed explanations for the behavior of LETFs’ returns and compounding effect under different market conditions, thus providing contexts to prior empirical results.