An Empirical Analysis of the Impact of Financial Leverage on the Performance of Second-Level Banks in Albania

Abstract

The financial scene in Albania, has seen some significant changes over time, shaped by different market situations and rules that put specific limits on financial choices. In today’s world, where globalization and competition are running high, making smart financial moves is crucial for a company’s success. Most studies on traditional finance have been mostly focused on analyzing how a company’s everyday performance is connected with the amount of debt. These studies try to investigate the complex relationship between financial leverage and the factors that make a company successful. Deferent researchers have been looking into the basic details of financial leverage, focusing on theories like the pecking order, which suggests that companies Fprefer using their own money rather than borrowing from outside. Despite having an assembly of theories, there’s no one answer for how a company should balance its money or which financial moves guarantee success. Every business is different, dealing with unique challenges in its way. Understanding how a company acquires its funding and where it originates plays a crucial role for businesses aiming to economize while trying to achieve substantial growth. This highlights how important it is to set up a money plan that looks out for the company’s interests. Interestingly, in a market where there’s no tax on money moves, the way a company sets up its money doesn’t seem to change how much it’s worth. Businesses have room to refine how much debt they carry, both in the short and long term, based on big investment decisions and the need for quick cash. The exact effect of leverage depends on several variables, such as the firm’s risk appetite, the state of the economy, and the dynamics of the industry. To summarize, the main goal of this empirical investigation is to clarify the relationship between financial leverage and the performance curve of Albania’s second-level banks throughout the ten years from 2012 to 2022. This investigation seeks to clarify if financial leverage methods were modified by Albanian banks, especially second-level banks, in response to changing market dynamics and regulatory changes, and how these modifications affected the banks’ overall performance.