An Investigation of Financial Leverage Influences on the Financial Performance of Chemical Sector Listed Companies in Pakistan

Abstract

The objective of this study is to find out how financial leverage influences the financial performances of the chemical sector listed companies in Pakistan. The economic data of 18 listed companies in the chemical industry has been included in this study. Financial leverage is used as an independent and profitability, assets turnover, Tobin q, and Liquidity are used as dependent variables. Unit root test is applied for data stationery and all the variables stationary at level. The Hausman test is applied to select the appropriate model, the random effect model is found as the suitable model, and hypotheses are tested by regression analysis. This study found a significant negative influence of financial leverage on Profitability, while there is no significant influence on Tobin Q, Assets Turnover, and Liquidity. This study suggests that financial managers should include a minimum portion of leverage in the combination of capital structure to boost profitability and the market value of the firm; asset efficiency and liquidity are not relevant to the financial leverage for chemical sector companies in Pakistan.