The Impact of Financial Leverage on Firm Performance: Evidence from Russia
13 Pages Posted: 2 Apr 2015 Last revised: 26 May 2017
Date Written: April 2, 2015
The relationship between financial leverage and firm performance is studied in this paper. Financial leverage can positively influence firm performance because leverage can be treated as a tool for disciplining management. The results for a large sample of Russian joint-stock companies over the period 2004-2013 years show, however, that the impact of financial leverage on Russian firms’ performance has been negative. The findings are robust to using different measures of firm performance, checking sub-samples and time clusters and employing alternative estimation approach. The results thus support pecking-order theory but are not consistent with trade-off or free-cash-flow theories.
Keywords: Financial Leverage, Firm Performance, Return on Assets, Return on Equity, Operating Margin
JEL Classification: E2, E4, G3, G32
Suggested Citation: Suggested Citation