The relationship between leverage and profitability of listed companies in Malaysia / Nadia Ahmad

Briefly, listed Companies in Malaysia shows a significant growth while the Malaysian economy gives cause for concern on several fronts. One of the initiatives is optimize capital management practices among Listed Companies. Hence, this study is undertaken to investigate whether have relationship between leverage and profitability of Listed Companies in Malaysia. Particularly, this study measures 5 Listed Companies in Malaysia for about 10 years duration. For the empirical work, Regression Analysis and Covariance Analysis were conducted to determine the relationship of Total Debt Ratio, Short Term Debt Ratio and Long Term Debt Ratio with the Return on Equity of Listed Companies in Malaysia. The empirical evidence using panel econometrics technique which is Ordinary Least Square (OLS) shows Short Term Debt Ratio and Long Term Debt Ratio are positively related whereas Total Debt Ratio are negatively related to Return on Equity. However, all the relationship are found insignificant. This means that a negative relationship between leverage and the performance indicates the firm may lead to use higher than appropriate levels of debt. This over leveraging may increase the lenders' influence which in turn limits the manager' ability to manage the operations effectively and consequently affecting the firm performance in negative way.