Effect of Leverage and Selected Control Variables on Performance of Firms Listed on Bursa Malaysia

Abstract

The study focus on the effect of leverage, size, liquidity, market-risk and market-to-book ratio on the return-on-asset (ROA) of firms listed on Bursa Malaysia. Based on the existing literature, a conceptual model was developed to test the relationships of the variables under investigation. Data from 903 companies were used for analysis. Subsequently, both descriptive and inferential statistics were employed. For testing the research hypotheses, hierarchical regression was used. The results showed that leverage, size, liquidity, market-risk and market-to-book ratio jointly explained 22.9% variance in the level of ROA. All the variables except size have significant unique contribution in influencing the dependent variable - ROA. It was recommended that the policy makers of firm should not underestimate the effect of leverage on performance in strategic business decisions. Finally,the theoretical implications, limitations and directions for future studies were highlighted.