The Effect of Financial Leverage on Profitability and Investment Decisions of the Firms : An Empirical Analysis of the Firm Listed on Pakistan Stock Exchange (PSX), Pakistan

Abstract

Purpose: The main objective of this research work is to empirically evaluate the effect of high financial leverage on firms’ profitability and investment decisions in Pakistan as one of emerging economies. Methodology / Approach: Ratios, correlation and regression analysis used in order to investigate the connection among the high debt level and firms’ profitability and investment decisions. Findings: Using accounting based measures of financial performance, like Return on assets (ROA), Return on equity (ROE), Net Profit Margin (NPM), and Earnings per share (EPS), and based on sample of 24 firms from 5 different sectors of non financial firms listed on Pakistan Stock Exchange, data from 2009 to 20014 the results using the SPSS software, analysis of correlation shows that there is opposite relationship among the high leverage levels and profitability and investment decisions.