The Effect of Leverage on Shareholders’ Return: An Empirical Study on Some Selected Listed Companies in Bangladesh

Abstract

Financial plan is one of the vital decisions of a firm because a financial plan affects the market value, cost of capital and shareholders return of a firm. The Proportion of Debt to Equity in the financial plan of a firm is called leverage. Since optimal debt ratio influences a firm’s market value and shareholder’s return, different firms use different debt ratio at different levels to maximize market value and shareholders return. Numerous researches have been conducted over the years on these issues. Most of these empirical studies have been conducted on developed countries perspective. This study aims to investigate the effect of leverage on shareholders’ return i.e. Shareholders’ return in the form of EPS of some listed companies under four industries in Bangladesh. The study identifies the relationship between leverage and EPS. A simple regression model has been used for the pooled data of the selected listed companies in Bangladesh considering debt ratio as independent variable and EPS as dependent variable. The study results reveal leverage has statistically significant effect on the shareholders’ return and proper management of leverage can maximize the value of EPS

Key words: Leverage, EPS