The Relationship Between Profitability and Leverage - A study on Swedish non-financial firms
(2012) BUSN88 20121Department of Business Administration
- Abstract
- The purpose of this study is to increase the understanding of profitability’s relationship to leverage by presenting evidence of Swedish non-financial firms listed on the OMX Nordic Stockholm stock exchange. The thesis will discover how the relationship differs across firm size as well as how the relationship differs between different market conditions.
The study takes a deductive approach with a quantitative strategy. Panel data regressions are used to determine the relationship. Further, multiplicative interaction models are used to account for firm size and market conditions.
Static trade-off theory, Pecking order theory and Market timing hypothesis are the ground theories of the thesis. Further, previous empirical literature on the... (More) - The purpose of this study is to increase the understanding of profitability’s relationship to leverage by presenting evidence of Swedish non-financial firms listed on the OMX Nordic Stockholm stock exchange. The thesis will discover how the relationship differs across firm size as well as how the relationship differs between different market conditions.
The study takes a deductive approach with a quantitative strategy. Panel data regressions are used to determine the relationship. Further, multiplicative interaction models are used to account for firm size and market conditions.
Static trade-off theory, Pecking order theory and Market timing hypothesis are the ground theories of the thesis. Further, previous empirical literature on the relationship between firm size and capital structure as well as market conditions and capital structure are important sources in the paper.
The empirical foundation is over 30 years for 614 non-financial firms listed on the OMX Nordic Stockholm stock exchange.
We conclude that Profitability’s relationship to leverage is negative for the non-financial firms listed on the OMX Nordic Stockholm stock exchange. We find results concluding that firm size has a significant impact on the relationship. However, depending on which definition of leverage used, the relationship differs. When accounting for a third dimension, market condition, the conclusion is that there is no significant relationship. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/2796110
- author
- Johansson, Lars LU and Sangberg, Fredrik LU
- supervisor
- organization
- course
- BUSN88 20121
- year
- 2012
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Capital structure, Static trade-off theory, Pecking order theory, Market timing hypothesis, Multiplicative interaction model.
- language
- English
- id
- 2796110
- date added to LUP
- 2012-06-27 15:28:49
- date last changed
- 2012-06-27 15:28:49
@misc{2796110, abstract = {{The purpose of this study is to increase the understanding of profitability’s relationship to leverage by presenting evidence of Swedish non-financial firms listed on the OMX Nordic Stockholm stock exchange. The thesis will discover how the relationship differs across firm size as well as how the relationship differs between different market conditions. The study takes a deductive approach with a quantitative strategy. Panel data regressions are used to determine the relationship. Further, multiplicative interaction models are used to account for firm size and market conditions. Static trade-off theory, Pecking order theory and Market timing hypothesis are the ground theories of the thesis. Further, previous empirical literature on the relationship between firm size and capital structure as well as market conditions and capital structure are important sources in the paper. The empirical foundation is over 30 years for 614 non-financial firms listed on the OMX Nordic Stockholm stock exchange. We conclude that Profitability’s relationship to leverage is negative for the non-financial firms listed on the OMX Nordic Stockholm stock exchange. We find results concluding that firm size has a significant impact on the relationship. However, depending on which definition of leverage used, the relationship differs. When accounting for a third dimension, market condition, the conclusion is that there is no significant relationship.}}, author = {{Johansson, Lars and Sangberg, Fredrik}}, language = {{eng}}, note = {{Student Paper}}, title = {{The Relationship Between Profitability and Leverage - A study on Swedish non-financial firms}}, year = {{2012}}, }