Impact of Financial Leverage on Firms’ Profitability: An Investigation from Cement Sector of Pakistan

Abstract

This research is an attempt to establish a stochastic relationship between Financial leverage and Profitability of cement sector operating in Pakistan. For this purpose 18 cement manufacturers out of 21 are incorporated in the study and six years annual data from 2005 to 2010 regarding financial leverage and profitability of the said firms were taken into consideration. The sample size for eighteen firms for six years consists of 108 observations. An Ordinary Least Square model is applied on the data to establish a causal relationship between the variables. The study finds that financial leverage has a statistically significant inverse impact on profitability at 99% confidence interval.

Keywords: Financial Leverage, Firms’ profitability, OLS

JEL: C12, G32, L61