Business, Management and Accounting
8 years ago

Debt-heavy agriculture firms struggle to maximize profits, study finds.

International journal of management
Financial Leverage and Firm's Value: A Study of Agriculture Sector Firms
Anshu Bhardwaj

Paper Summary

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Financial leverage and firm value in the agriculture sector were studied over 9 years. Data from 18 firms on the Bombay Stock Exchange showed a negative relationship between return on assets and financial leverage. This means that firms with lower financial risk had lower returns. Debt to assets ratio was negatively related to financial leverage, while operating profit margin was positively related. Firms with more fixed assets tended to have higher debt equity ratios. Successful companies in the agriculture sector didn't rely much on external funding, preferring internal reserves. These findings challenge the idea that financial leverage doesn't affect firm value.