The Impact of Financial Leverage on Firms' Performance: A Case of Listed Companies of Oil and Gas Industry of Pakistan

Abstract

The purpose of the study is to investigate the impact of financial leverage on firms’ performance in the Oil and Gas industry of Pakistan which plays a significant role in the growth and development of the country. This industry is the major concern of the study. This sector has a major contribution in the development and growth of manufacturing, services and trading industries of Pakistan. It is contributing distinctive share in Annual GDP growth of the country. The major aim of the study is to evaluate and observe the impact of financial leverage on performance of the firms in Oil and Gas sector. And investigate that whether leverage has significant impact and nature of their relationship. Research has been conducted by taking the companies from Oil and Gas sector which are listed at Karachi Stock Exchange of Pakistan including exploring and marketing segment of the industry. For the research, random selection of 12 firms was done as primary data while secondary data was collected from the annual reports of the firms for the period of 2010- 2014. The general trend about the financial leverage is that it has positive impact on the performance of the firms. The results of the study showed that financial leverage has significant negative correlation with the selected performance indicators which were ROA, ROE and NPM. It depends upon the country’s economic condition and particular industry forces. The results of the study are not generalized to the other industries and firms ignored in this research.