Financial Leverage and corporate performance: Does the duration of the Debt Ratio Matters

Abstract

This paper examines the relationship between financial leverage and performance of listed firms in an emerging market, Ghana. Specifically, we examine the link between short-term, long-term and total debts on performance. We use data of 190 firm-year observations from 19 listed firms over a period of ten years (2005-2014). Fixed and random effects regression models are used to examine the financial leverage-corporate performance nexus. The result shows that total debt to total assets is negatively related to accounting and market performance. Short-term debt to total assets is also negatively related to return on assets and Tobin's Q but not return on equity. The long-term debt to total assets is negative and insignificantly related to corporate performance. Our contribution is that; short-term debt diminishes shareholder value in the developing economy context.