Performance of Levered and non-levered firms of Pakistan

Abstract

This study determines to investigate two main objectives; 1) whether levered or unlevered firms explain variations in the profitability of KSE listed firms of Pakistan. 2) Which firm (Levered and non-Levered) is suitable for investor in term of their return on investment? The study used panel data for Return on Assets (ROA), Return on Equity (ROE) and Debt to Equity Ratio (D/E ratio) of four sectors of Pakistan (Pharmaceutical sector, Chemical Sector, Power and Generation& Distribution sector and Food & personal care product sector) for 5 years (2010-2014) collected from Karachi Stock Exchange (KSE) of Pakistan. For analysis Linear Regression model, ANOVA testing and Descriptive statistical analysis is used. The overall results of the current study shows the non-levered firms have significant positive relationship between both dependent variables (ROE, ROA) and independent variable (D/E ratio). On the other hand, levered firms have significant negative results for return on assets and Debt to equity ratio but the results for return on equity and debt to equity ratio is insignificant and negative which mean levered firms are not appropriate for equity investors.