1.

Introduction
In the fast-paced world of finance, where risks can yield remarkable rewards or catastrophic
losses, one concept has stood the test of time as both a powerful tool and a double-edged sword:
financial leverage (Klein, 2001). Leverage can be defined as the amount that a company uses
debt and equity to finance its assets is measured by financial leverage (Enekwe et al., 2014). In
both established and developing economies, leverage has become increasingly important. It is a
useful instrument for managing financial crises. Paying attention to leverage could result in
fewer financial crises over the course of a century (Al Dabbas, 2023). Early forms of financial
leverage emerged in various historical contexts, reflecting the need for individuals and
organizations to amplify their resources and potential return (Arhinful & Radmehr, 2023). In
ancient civilizations and medieval economies, trade often involved credit arrangements and
barter systems (Bei & Wijewardana, 2012). Merchants would extend credit to one another,
allowing for the purchase of goods and services without immediate payment. By using future
earnings or resources as leverage, this strategy made it possible to buy assets or make trades in
the here and now (Sarkar, 2020). The historical development of leveraging methods to support
commerce, investment, and economic activities is highlighted by the early example of financial
leverage. The idea of leveraging resources and future earnings to generate current value is still a
fundamental notion in finance and trade, even though the tools and procedures have changed
over time (Papadimitri et al., 2021). The financial and economic landscapes underwent a
dramatic change with the Industrial Revolution (Long & Malitz, 1985). Businesses started to
grow quickly, necessitating large sums of money for development, infrastructure, and machinery
purchases (Giarto & Fachrurrozie, 2020) . More complex financial instruments, such bonds and
preferred stock, were developed during this time, allowing businesses to raise money from a
wider range of investors and better utilize their resources (Rayan, 2008).

The relationship between capital structure and financial leverage is intricate and multifaceted
(Graham et al., 2015). Capital structure refers to the mix of debt and equity that a company uses
to finance its operations and investments (Brown et al., 2021) . This strategic decision plays a
pivotal role in determining the financial health, risk profile, and performance of a firm. Financial
leverage, a key component of capital structure, involves the use of debt capital alongside equity
to fund business activities (Margaritis & Psillaki, 2007). In the dynamic landscape of modern
business, firms continually strive to optimize their capital structures to achieve sustainable
growth, enhance shareholder value, and manage risks effectively (Nissim & Penman, 2003). In
order to comprehend leverage dynamics and how they affect firm performance, a strong
theoretical base is necessary (Mandelker & Rhee, 1984). A pillar of contemporary finance
theory, the Modigliani-Miller theorem asserts that, under specific conditions, a firm's capital
structure has no bearing on its market value (Titman & Tsyplakov, 2007). But in real-world
situations with taxes, agency problems, bankruptcy expenses, and imperfect markets, leverage
can have a big impact on a company's cost of capital, risk profile, and performance (Miao,
2005). Building upon the Modigliani-Miller framework, various theories have emerged to
explain the effects of leverage on firm value and performance. According to the trade-off
hypothesis, businesses should weigh the benefits of debt in relation to the expenses of financial
hardship and agency conflicts to determine the best capital structure for maximizing shareholder
wealth (Serrasqueiro & Caetano, 2015). Pecking order theory, on the other hand, suggests that
organizations have a hierarchy of financing preferences based on asymmetric information and
signaling effects, with internal financing for example, retained earnings preferred over external
debt (Abel, 2018). Additionally, agency theory highlights the role of conflicts of interest
between shareholders, managers, and creditors in shaping leveraging decisions and
organizational outcomes (Miao, 2005). The alignment of incentives, effective corporate
governance mechanisms, and transparency in financial reporting are crucial factors that mediate
the relationship between leverage choices and firm performance (Dalci, 2018).

There exists heterogeneity in the impact of leverage on business performance among different
industries, markets, and organizational environments (Pandey & Sahu, 2017). The results of
leveraging decisions are influenced by a variety of factors, including competitive landscapes,
market dynamics, regulatory environments, and industry dynamics (Hongli et al., 2019).For
example, long-term projects in capital-intensive industries like manufacturing and infrastructure
development might be financed primarily by debt, but technological companies might give
priority to equity financing in order to retain flexibility and innovation capabilities (Papadimitri,
2021).

Moreover, macroeconomic factors such as interest rates, inflation rates, and economic cycles can
impact the cost of debt, debt capacity, and debt servicing capabilities of firms, shaping their
leveraging strategies and risk management practices (Inam & Mir, 2014). The role of corporate
governance structures, board oversight, and executive compensation incentives also plays a
critical role in aligning leveraging decisions with long-term value creation and shareholder
interests (De Loecker & Goldberg, 2014).

A company's operations and financial activities' sustainability, profitability, and efficiency are all
reflected in its firm performance, which is measured using a variety of measures and indicators
(Dey et al., 2018). These measures frequently consist of operating margins, earnings per share
(EPS), return on assets (ROA), return on equity (ROE), and market value indicators including
market capitalization and shareholder returns (Yasmin ,2021) . Firm performance and financial
leverage have a complicated and dynamic relationship that is impacted by several variables,
including competitve positioning, economic conditions, industry dynamic and managerial
techniques (Huynh et al., 2022)..A detailed examination of how leveraging decisions affect
important performance drivers and overall organizational results is necessary to comprehend this
relationship (Ahmed et al., 2018). In this study we focus on the financial leverage impact on
Jordanian listed companies, The Jordanian economy is characterized by its diverse sectors,
including industry, services, and agriculture (Samarah, 2023). It is considered one of the more
stable economies in the Middle East region. Jordan's economy is primarily driven by services,
including tourism, finance, and trade (Sadiq et al., 2023).

The impact of financial leverage on Jordanian companies depends on numerous factors such as
the company's financial management practices, industry dynamics, economic environment, and
regulatory framework. Balancing the benefits of leverage with the associated risks is essential for
sustainable growth and financial stability. This study investigates the impact of financial
leverage on firm performance in the presence of Amman stock exchange by applying statistical
tools and analyzing them. The main theme of this study is to find out that there is a link between
leverage and firm’s performance. This study answers the following question. What is the effect
of firm leverage on firm performance?
This thesis is organized into five chapters. Chapter 1 provides an introduction to the research
question, objectives, and significance of the study. Chapter 2 provides a comprehensive review
of the relevant literature on the topic, identifying gaps in the literature that this study aims to
address. Chapter 3 outlines the research methodology, including the research design, sampling
strategy, data collection and analysis methods. Chapter 4 presents the findings of the study, with
a focus on the relationship between firm leverage and firm performance in Jordan companies.
Chapter 5 provides a summary of the main findings, implications for future research, and
recommendations for practitioners and policymakers.

2. Literature review
2.1 Financial Performance Determinants
Constant performance improvement stands as the cornerstone goal of every corporation, as noted
by (Chandler, 1962) . This pursuit is not only pivotal for shareholders but also for scholars, as it
provides a platform to delve into the myriad factors influencing a firm's financial performance.
Financial performance serves as a gauge of an organization's fiscal well-being and mirrors the
efficacy of its top leadership. As elucidated by (Almajali et al., 2012) ,heightened financial
performance signifies a company's adeptness in resource utilization, thereby bolstering its
success and efficiency, which in turn contributes to the broader macroeconomic landscape.The
literature discerns two primary facets of company performance: financial or economic
performance and inventive performance. Performance is no longer construed solely as a measure
of organizational efficacy but rather as an indicator of goal achievement (Cherrington, 1989).
(Peterson et al., 2003) underscore performance as a reflection of an organization's capability to
efficiently employ its resources to attain predefined goals while considering stakeholder
interests. Subsequently, performance has evolved into a barometer reflecting a business's
developmental trajectory (Peleckis et al., 2013). Given its significance, performance is
meticulously measured and determined, predominantly through avenues such as profitability.

Recent research has unearthed various factors influencing corporate performance. Investigations
often focus on mechanistic organizations, leveraging real-life examples. For instance,
(Schiniotakis, 2012) identified factors influencing profitability using data from 961 Australian
enterprises, encompassing aspects such as sluggishness, low productivity, inventiveness, firm
size, and divisional impacts. Similarly, (Ozili, 2018) analyzed factors influencing the
profitability of Indian business banks, discovering that private sector banks exhibit moderately
higher production and capabilities compared to their counterparts. Notably, profitability emerges
as a paramount consideration for both manufacturing and service sectors when allocating
investments (Olson & Slater, 2002). Firm size emerges as a crucial determinant of performance.
Studies by (Vijayakumar & Tamizhselvan ,2010), (Papadogonas, 2007) ,(Lee, 2009) ,and
(Amato & Burson, 2007) elucidate the positive influence of firm size on profitability across
various contexts. However, (Falope & Ajilore, 2009) found no significant relationship between
working capital and firm performance in their study of 50 listed firms, underscoring the
multifaceted nature of performance determinants.The compensation of CEOs plays a pivotal role
in shaping organizational dynamics. (Hall & Liebman, 1998) delved into the relationship
between CEO pay and performance among publicly traded US companies, refuting the notion
that CEOs are compensated as bureaucrats. (Nourayi & Daroca, 2008) expanded on this by
examining the correlation between CEO compensation, firm size, and performance across 455
US firms from 1996 to 2002. Their findings underscored a significant but modest positive
relationship between CEO compensation and firm performance, indicating the intricate interplay
between executive pay and organizational outcomes. Leadership emerges as a critical
determinant of organizational success. (Ittner & Larcker, 1997) highlighted the pivotal role of
leaders in formulating and executing strategies conducive to enhancing financial performance
and responsiveness. Recent studies, such as that by (Gürlek & Cemberci, 2020), further affirm
the significance of leadership in driving financial performance across diverse contexts,
underscoring the enduring relevance of effective leadership in organizational success. Economic
conditions wield a profound influence on a company's performance. (Ntim, 2009) elucidated
how the country's economic status, including borrowing costs, can significantly impact a firm's
ability to generate funds and invest in projects. Factors such as currency depreciation, import
costs, inflation rates, and income levels further compound the challenges, potentially diminishing
demand for industrial goods and adversely affecting firm performance (Forbes & Rigobon,
2002). Corporate governance practices serve as a linchpin in enhancing firm performance.
(Chugh et al., 2011) posited that robust corporate governance policies contribute positively to
organizational performance. (Javed & Iqbal 2007) corroborated this by examining the impact of
corporate governance on firm performance, revealing a substantial correlation between
governance indices and performance, albeit with exceptions in transparency and disclosure.

Ownership structure also exerts a profound influence on firm performance dynamics. Scholars
like (Burkart & Panunzi, 2006) found that outside ownership concentration tends to increase
with the quality of legal frameworks. Inside ownership, conversely, is positively associated with
firm growth but inversely related to firm size (Bohren et al., 2009). (Kaserer & Moldenhauer,
2008) further elucidated the positive impact of inside ownership on corporate performance,
highlighting its significant influence on managerial financial decisions.Capital structure,
encompassing the mix of debt and equity financing, emerges as a critical determinant of firm
performance (Su & Vo, 2010). Effective risk management practices, alongside well-maintained
ownership structures and robust corporate governance frameworks, are pivotal in enhancing
shareholder profitability (Sarykalin et al., 2008).
Moreover, firm characteristics and policies play a significant role in shaping performance
outcomes. Factors such as size, growth rate, dividends, liquidity, and sales are intricately linked
to firm performance (Love & Rachinsky, 2007). (Succurro & Mannarino, 2014) highlighted how
firms with higher growth rates tend to invest in better machinery and attract superior
management and employees, thereby fostering mutual benefits for the company and its
workforce. These insights underscore the multifaceted nature of organizational performance
dynamics and the interplay of various factors in shaping firm outcomes.

2.2 The impact of leverage

Leverage, often defined as the use of borrowed funds to invest and generate returns, has
significant implications for company risk and behavior (Cai & Zhang, 2011). High financial
leverage typically signifies increased riskiness for companies due to this practice.
Roychowdhury's study on genuine earnings management sheds light on the relationship between
leverage and financial practices (Roychowdhury, 2006). Analyzing data from firms listed on
Bursa Malaysia, Roychowdhury found a significant negative correlation between leverage and
genuine earnings management, suggesting that firms with higher leverage engage in less
earnings manipulation. This highlights the role of leverage in influencing the integrity of
financial reporting. Similarly, (Aivazian et al., 2005) discovered that leverage adversely affects
investment decisions for Canadian firms, particularly those with limited growth prospects. This
indicates the nuanced impact of leverage on different types of companies within varying
economic contexts. (Modigliani & Miller, 1958) challenged traditional notions by proposing that,
in certain tax-free economies, capital structure does not affect firm value, underscoring the
complexity of leverage's effects. Furthermore, leverage influences dividend policies, especially
when leverage levels are high, signaling greater risk in terms of cash flow (Eriotis & Vasiliou,
2004). Despite limited attention in some countries, like Greece, dividend policy and its
relationship with capital structure have been explored, revealing positive correlations between
dividend policies and key financial variables (Eriotis & Vasiliou, 2004).

Theoretical perspectives on corporate debt further illuminate the dynamics of leverage. Myers
(1984) presents the conflict between the trade-off theory and the pecking order theory. The trade-
off theory posits that firms determine their capital structure by balancing the benefits of
borrowing, such as tax savings, against the costs, including bankruptcy expenses (Frank &
Goyal, 2008). In contrast, the pecking order theory suggests that firms prioritize debt financing
over equity financing due to adverse selection concerns, with retained earnings serving as a
secondary funding source (Frank & Goyal, 2008). These theories offer insights into the complex
interplay between leverage, firm behavior, and financial decision-making.

2.3 leverage and firms performance

Financial leverage and performance are fundamental concerns for businesses, with numerous
studies shedding light on their relationship. (Abu-Abbas et al., 2019) they found that there is a
negative correlation between financial leverage and firm performance used data from the
Amman Stock Exchange sample. Also, (Mukras, 2015) concluded that Financial leverage is a
significant negative predictor of financial performance using data from the companies listed in
Kenya .Furthermore, (Anis et al., 2022) discovered that financial leverage has a negative impact
on the financial performance of the non-financial firm, they used data from 100 top companies
listed on the Stock Exchange of Pakistan for the years 2011 to 2021. (Chen, 2020) conducted a
study in China, revealing a negative impact of increased financial leverage on company
performance. Analyzing data from 1079 Chinese listed enterprises over 2010–2019, their
findings underscored the detrimental effects of leverage on business outcomes. Similarly,
(Vithessonthi & Tongurai, 2015) identified a negative correlation between leverage and company
success across their sample. Moreover, they found that the magnitude of this impact varies with
firm size, with larger enterprises experiencing a more pronounced effect compared to smaller
firms, both domestically and internationally. Further insights into this relationship were provided
by (Ibhagui & Olokoyo, 2018) , who noted a diminishing negative impact of leverage on
performance with increasing firm size. This effect eventually disappears once the firm reaches a
certain threshold level, with smaller enterprises bearing the brunt of leverage's adverse effects.
(Ali et al., 2022) also observed a negative association between leverage and performance using
panel data from 70 non-financial Pakistan Stock Exchange companies over seven years (2010–
2016). Their analysis, focusing on metrics such as return on equity (ROE) and return on assets
(ROA), underscored the significant impact of ownership structure on this relationship. (Raza,
2013) echoed these findings, revealing a negative correlation between leverage and performance
in their study of KSE-listed non-financial enterprises from 2004 to 2009. Employing panel data
analysis, they elucidated factors influencing capital structure and their implications for firm
performance. Additionally, (Ma'in et al., 2022) highlighted the detrimental impact of financial
leverage on the performance of Shariah-listed consumer products and services firms in Malaysia.
Investigating data from 2014 to 2018, their study underscored the challenges posed by leverage
in this specific sector. These studies collectively underscore the importance of understanding the
nuanced relationship between financial leverage and performance, with implications for firms
across various industries and geographical locations.

Examining financial metrics such as return on assets (ROA) and return on equity (ROE) offers
valuable insights into how financial leverage impacts company performance. For instance, both
(Ali et al., 2022) and (Chen, 2020) identified a negative association between leverage and
performance, employing these financial metrics. However, (Chen, 2020) took a novel approach
by examining the moderating influence of operating leverage on the relationship between
financial leverage and business performance within Chinese industries. While insightful, this
broad industry-wide analysis may overlook nuances specific to firms of varying sizes. Thus,
future research could benefit from categorizing organizations based on size for a more granular
investigation. Furthermore, (Ali et al., 2022) study in Pakistan Stock Exchange, a developing
economy, offers unique insights distinct from those conducted in developed nations. The distinct
corporate governance system and cultural context of Pakistan contribute to nuanced findings
compared to previous research. Additionally, (Puri, 2023) emphasizes the importance of
considering both market-based and accounting-based measurements of performance. While (Ali
et al., 2022) solely focused on accounting-based metrics, incorporating market-based measures
would provide a more comprehensive understanding of a company's overall performance. By
considering investor sentiment, financial health, historical results, and future expectations, a
balanced approach to performance measurement can offer richer insights into the impact of
financial leverage.

Investigating the impact of financial leverage on firm performance through the lens of firm size
provides valuable insights into this complex relationship. Researchers like (Vithessonthi &
Tongurai, 2015) and (Ibhagui & Olokoyo, 2018) have explored whether the effect of leverage on
business performance depends on firm size or remains independent of it. However, (Ibhagui &
Olokoyo, 2018) encountered limitations due to unconsidered factors and a narrow range of
thresholds and controls, highlighting potential data issues that may impact the reliability of their
findings. In contrast, (Vithessonthi & Tongurai, 2015) study reveals the nuanced impact of
financial leverage on firm performance, considering factors such as firm size and the degree of
internationalization. Large domestically oriented firms tend to experience a more pronounced
negative impact on performance due to leverage, while large internationally oriented firms may
derive positive benefits from leverage. Another avenue to explore the relationship between
leverage and financial performance is through capital structure analysis. (Raza, 2013) discovered
that long-term debt, due to certain direct and indirect costs, can lead to reduced profitability.
These findings align with the pecking order theory, suggesting a compatibility between
profitability and capital structure decisions. (Circiumaru et al., 2010) further emphasizes the
complexity of capital structure decisions, acknowledging the multitude of factors involved and
the inherent uncertainty surrounding them. Overall, the interplay between financial leverage,
firm size, and capital structure underscores the intricacies of firm performance dynamics. While
existing theories offer valuable insights, addressing data limitations and considering a broader
range of factors can enhance our understanding of how financial decisions impact business
outcomes.

On the other hand, a plethora of studies has delved into the relationship between financial
leverage and performance, recognizing these as pivotal considerations for businesses. (Dey et al.,
2018) conducted an investigation in Bangladesh, revealing a positive impact of financial
leverage on financial performance. Focusing on manufacturing companies listed on the DSE,
their study, spanning 17 years and involving 48 companies, sheds light on how financial leverage
influences performance in the local context. Similarly, (Hongli et al., 2019) discovered a strong
positive influence of the financial leverage ratio, utilizing 65% debt to finance assets, on
company performance metrics such as ROA and ROE. Their findings underscore the significant
role of leverage in driving firm performance to a considerable extent. (Iqbal & Usman, 2018)
focused on companies within the PSX 100-index, specifically Pakistan Textile Composite
Companies, over a five-year period from 2011 to 2015. Their research indicates that financial
leverage positively impacts firm performance, provided that the amount of debt does not exceed
equity levels, highlighting the importance of maintaining a balanced capital structure.

(Arhinful & Radmehr, 2023) aimed to explore the effect of financial leverage on firm
performance using data from 263 firms in the automotive and industrial producer sectors listed
on the Tokyo Stock Exchange between 2001 and 2021. Their study discovered that ROA, ROE,
and EPS are all positively and statistically significantly impacted by the equity multiplier,
shedding light on the dynamics of financial leverage and performance. Additionally,
(Vithessonthi & Tongurai, 2015) examined 159,375 non-financial firms in Thailand during the
2007–2009 global financial crisis. While their full sample analysis showed a negative association
between leverage and firm performance, they found a positive impact of leverage for
internationally-oriented firms, highlighting the nuanced effects of financial leverage across
different business contexts. Determining how financial leverage impacts a company's
performance typically involves assessing various financial measures such as return on equity
(ROE), return on assets (ROA), and earnings per share (EPS), alongside metrics like the debt-
assets ratio and debt-equity ratio. For instance, (Dey et al., 2018) measured financial
performance using ROA, ROE, and EPS, while assessing financial leverage using the debt-assets
ratio and debt-equity ratio. They discovered that financial leverage had no effect on EPS,
exhibited a negative correlation with ROA, and had a positive influence on ROE. Conversely,
(Iqbal & Usman, 2018) found that financial leverage had a negative and significant effect on firm
ROE, while also observing a positive and significant effect on firm ROA. Their study provides
insights into the nuanced impacts of financial leverage on different performance metrics within a
firm. Similarly, (Hongli et al., 2019) demonstrated a strong positive impact of financial leverage
on both return on assets and return on equity. By highlighting these relationships, their findings
underscore the significant influence that financial leverage can exert on a company's financial
performance, emphasizing the importance of considering multiple performance metrics in
understanding the effects of leverage.
H1: There is a strong negative correlation between (firm leverage and manufacturing firm
performance)

3. Methodology

3.1 Sample
Data was collected by combining secondary data sources through financial statements data that
included relevant information. The study used 50 manufacturing companies listed in the Amman
stock exchange. The ASE provides publicly accessible information on listed companies,
financial reports, corporate governance practices, and other relevant data. As well as the local
relevance ASE-listed companies. The use of quantitative data analysis methodology, particularly
leveraging financial statements, is well-suited for investigating the leverage effect on
performance due to its ability to provide precise, objective, and statistically rigorous insights into
the relationship between leverage and firm performance.

3.2 Variable measurement

Dependent variable
The dependent variable observed through the study was firm performance, which measures how
well a company is achieving its strategic and operational objectives. And it serves as an overall
assessment of a company's effectiveness in generating value for its stakeholders. Firm
performance provides insights into the company's financial health, operational efficiency, market
competitiveness, and strategic execution. Many studies have utilized firm performance as an
independent variable, like (Abu-Abbas et al., 2019), (Akhtar et al., 2012) and (Al-Taani, 2013).

Independent variable
The independent variable examined in the study was firm leverage, it measures return on assets
(ROA), return on equity (ROE), earnings per share (EPS). Previous studies have explored the
relationship between firm leverage and firm performance, employing a diverse array of variables
in their analyses (Kaluarachchi et al., 2021). Most of these studies have used return on equity
like (Inam & Mir, 2014), (Javeed & Tabassam, 2018), return on assets such as (Abubakar, 2016),
(Pandey & Sahu, 2017) and earnings per share like (Laila & Akhter, 2021).

Control variable
Factors such as firm size, CEO compensation, growth rate, liquidity and firm age are linked to
firm performance, to illustrate firm size emerges as a crucial determinant of performance. In
industries where competition is necessary, large companies have greater pricing power than
small businesses (Doğan, 2013), since the large firms have greater market power (Melitz &
Ottaviano, 2008). According to (Komnenic and Pokrajčić ,2012), the growth in relational capital
investment's capacity to generate and distribute value is dependent on the firm size. According to
a study by (Doğan ,2013), there is a strong positive correlation between firms size and
profitability.

A study by (Bryson et al., 2013) using data from Canadian public firms establishes a positive
association between CEO compensation and firm performance, including metrics like return on
assets (ROA) and return on equity (ROE). Similarly, (Safari & Meriläinen, 2019) explore this
relationship with panel data from UK firms, discovering a positive correlation between CEO pay
and performance indicators such as ROA and Tobin's Q. (Kang & Nam, 2020) analyze panel
data and find a positive link between CEO pay and firm performance metrics, including ROA
and ROE. In contrast, (Bloom & Van Reenen, 2007) find evidence of a negative relationship
between CEO compensation and firm performance, particularly in companies with weak
governance structures, based on UK data. (Leal & Carvalhal-da-Silva, 2017) corroborate this
finding in Brazil, revealing a negative association between CEO pay and performance measures
such as ROA and ROE.

(Pandey et al., 2016) examine the relationship between growth rate and firm performance among
manufacturing firms in India, finding a positive correlation with profitability, productivity, and
market share.Their study adds to the understanding of how growth influences various
performance metrics within the manufacturing sector. Similarly, (Francioni & Imbriani, 2018)
investigate the impact of growth rate on firm performance using European company data,
revealing a positive relationship with return on assets (ROA) and return on equity (ROE). This
research contributes insights into the positive effects of growth on financial performance metrics
among European firms. Meanwhile, (Kaya & Ozdemir, 2020) explore the relationship between
firm growth and performance among Turkish manufacturing firms, discovering that higher
growth rates are associated with improved profitability and efficiency. Their findings underscore
the importance of growth strategies for enhancing firm performance in the Turkish
manufacturing context. Additionally, (Li & Zhang, 2021) focusing on Chinese listed firms,
identify a positive association between growth rate and performance measures such as
profitability and market value, highlighting the positive impact of growth on financial outcomes
in the Chinese market. Conversely, (Antonelli et al., 2012) find evidence of a negative
relationship between growth rate and firm performance among high-growth Italian
manufacturing firms, suggesting potential declines in subsequent periods. Their research
emphasizes the nuanced nature of the growth-performance relationship and its implications for
high-growth firms in Italy. Furthermore, (Banerjee & Datta, 2016) observe a U-shaped
relationship between growth rate and performance among Indian manufacturing firms, indicating
that while moderate growth rates positively impact performance, extremely high growth rates
can lead to declines. This insight sheds light on the non-linear nature of the growth-performance
relationship in the Indian manufacturing sector.

Liquidity plays an important role on firm performance. A popular definition of liquidity is an

entity's capacity to convert its assets into cash as quickly as possible without losing value
(Hongli et al., 2019). Additionally, liquidity enhances the effectiveness of manager pay-for-
performance sensitivity, which boosts firm performance (Fang et al., 2009). Furthermore, one
such tool that allows investors to quickly sell stocks whenever they fear expropriation is liquidity
 (Farooq & Bouaich, 2012). An investigation by (Dalvi & Baghi, 2014) showed that firm
performance positively correlated with liquidity.

Recent studies have revealed that a firm's age has a major impact on its performance (Raja &
Kumar, 2005). According to a study by (Nguyen et al., 2019) , a firm's age has a negative
effect on its performance. A study that was conducted in Turky by (Akben-Selcuk, 2016)
investigate the impact of firm age on the profitability, using a dataset covering the years
between 2005 and 2014, the findings indicate that the profitability as determined by return on
equity, return on assets, and gross profit margin is negatively correlated with the age of the
company. Moreover, an investigation that was carried out in China by (Rahman & Yilun,
2021) showed that firm age negativaly correlated with the profitability.
Empirical Model
Firm performance = B0 + B1 (firm size) + B2 (CEO compensation) + B3 (growth rate) + B4
(liquidity) + B5 (firm age) +- E

References:
1. Klein, L. S., O’brien, T. J., & Peters, S. R. (2001). Capital structure. Journal of Economic
Perspectives, 15(2), 81–102. https://doi.org/10.1257/JEP.15.2.81

2. Enekwe, C. I., Agu, C. I., & Eziedo, K. N. (2014). The effect of financial leverage on financial
performance: Evidence of quoted pharmaceutical companies in Nigeria. IOSR Journal of
Economics and Finance, 5(3), 17-25.

3. Al Dabbas, M. M. N. (2023). The Impact of Operating and financial leverages on the Financial
Performance of the Jordanian Industrial Companies. Journal of Logistics, Informatics and
Service Science, 10(2), 231–248. https://doi.org/10.33168/JLISS.2023.0216

4. Arhinful, R., & Radmehr, M. (2023). The effect of financial leverage on financial performance:
evidence from non-financial institutions listed on the Tokyo stock market. Journal of Capital
Markets Studies, 7(1), 53-71.
 5. Bei, Z., & Wijewardana, W. P. (2012). Financial leverage, firm growth and financial strength in
the listed companies in Sri Lanka. Procedia-social and behavioral sciences, 40, 709-715.

6. Sarkar, S. (2020). The relationship between operating leverage and financial leverage.
Accounting & Finance, 60, 805-826.

7. Papadimitri, P., Pasiouras, F., & Tasiou, M. (2021). Financial leverage and performance: The
case of financial technology firms. Applied Economics, 53(44), 5103-5121.

8. Long, M. S., & Malitz, I. B. (1985). Investment patterns and financial leverage. In Corporate
capital structures in the United States (pp. 325-352). University of Chicago Press.

9. Giarto, R. V. D., & Fachrurrozie, F. (2020). The effect of leverage, sales growth, cash flow on
financial distress with corporate governance as a moderating variable. Accounting Analysis
Journal, 9(1), 15-21.
10. Rayan, K. (2008). Financial leverage and firm value. University of Pretoria (South Africa).

11. Graham, J. R., Leary, M. T., & Roberts, M. R. (2015). A century of capital structure: The
leveraging of corporate America. Journal of financial economics, 118(3), 658-683.

12. Brown, G., Harris, R., & Munday, S. (2021). Capital structure and leverage in private equity
buyouts. Journal of Applied Corporate Finance, 33(3), 42-58.

13. Margaritis, D., & Psillaki, M. (2007). Capital structure and firm efficiency. Journal of Business
finance & accounting, 34(9‐10), 1447-1469.

14. Nissim, D., & Penman, S. H. (2003). Financial statement analysis of leverage and how it
informs about profitability and price-to-book ratios. Review of accounting studies, 8, 531-560.

15. Mandelker, G. N., & Rhee, S. G. (1984). The impact of the degrees of operating and financial
leverage on systematic risk of common stock. Journal of financial and quantitative analysis,
19(1), 45-57.

16. Titman, S., & Tsyplakov, S. (2007). A dynamic model of optimal capital structure. Review of
Finance, 11(3), 401-451.

17. Miao, J. (2005). Optimal capital structure and industry dynamics. The Journal of finance, 60(6),
2621-2659.

18. Serrasqueiro, Z., & Caetano, A. (2015). Trade-Off Theory versus Pecking Order Theory: capital
structure decisions in a peripheral region of Portugal. Journal of Business Economics and
Management, 16(2), 445-466.

19. Abel, A. B. (2018). Optimal debt and profitability in the trade‐off theory. The Journal of
Finance, 73(1), 95-143.
20. Miao, J. (2005). Optimal capital structure and industry dynamics. The Journal of finance, 60(6),
2621-2659.

21. Dalci, I. (2018). Impact of financial leverage on profitability of listed manufacturing firms in
China. Pacific Accounting Review, 30(4), 410-432.

22. Pandey, K. D., & Sahu, T. N. (2017). Financial leverage, firm performance and value: With
reference to Indian manufacturing firms. Asian Journal of Research in Banking and Finance,
7(7), 265-274.

23. Hongli, J., Ajorsu, E., and, E. B.-R. J. of F., & 2019, undefined. (n.d.). The effect of liquidity
and financial leverage on firm performance: Evidence from listed manufacturing firms on the
Ghana stock exchange. Academia.Edu. Retrieved 9 May 2024, from
https://www.academia.edu/download/75435975/49112.pdf
24. Inam, A., & Mir, G. M. (2014). The impact of financial leverage on firm performance in fuel
and energy sector, Pakistan. European Journal of Business and Management, 6(37), 339-347.

25. De Loecker, J., & Goldberg, P. K. (2014). Firm performance in a global market. Annu. Rev.
Econ., 6(1), 201-227.

26. Dey, R. K., Hossain, S. Z., & Rahman, R. A. (2018). Effect of corporate financial leverage on
financial performance: A study on publicly traded manufacturing companies in Bangladesh.
Asian social science, 14(12), 124.

27. Yasmin, A., 2021, A. H.-J. of E. and F., & 2022, undefined. (n.d.). Impact of Financial
Leverage on Financial Performance. Iiu.Edu.Pk, 2021(1), 22–40. Retrieved 18 March 2024, from
https://www.iiu.edu.pk/wp-content/uploads/2023/02/IJEF-2021-V2-Issue-1-Article-2-
10022023.pdf

28. Huynh, Q. L., Hoque, M. E., Susanto, P., Watto, W. A., & Ashraf, M. (2022). Does financial
leverage mediates corporate governance and firm performance?. Sustainability, 14(20), 13545.

29. Ahmed, F., Awais, I., & Kashif, M. (2018). Financial leverage and firms’ performance:
Empirical evidence from KSE-100 Index. Etikonomi, 17(1), 45-56.

30. Samarah, W. A. (2023). The Role of Imports on the Convergence of the Jordanian Economy
towards a Competitive Economy. Journal of the Knowledge Economy, 1-11.

31. Sadiq, M., Yousaf, S. U., Anser, M. K., Sriyanto, S., Zaman, K., Van Tu, D., & Anis, S. N. M.
(2023). The role of debt financing in the relationship between capital structure, firm’s value, and
macroeconomic factors: To throw caution to the wind. The Quarterly Review of Economics and
Finance, 87, 212-223.

32.Chandler, A.D.: Strategy and Structure. MIT Press, Cambridge (1962).

33.Almajali AY, Alamro SA, Al-Soub YZ. Factors affecting the financial performance of Jordanian
insurance companies listed at Amman stock exchange. Journal of Management Research.
2012;4(2):266.

34.Cherrington, D.J.: Organizational Behavior: The Management of Individual and Organizational

Performance. Allyn & Bacon, Boston (1989)

35.Peterson, W., Gijsbers, G., & Wilks, M. (2003). An organizational performance assessment
system for agricultural research organizations: concepts, methods, and procedures.

36.Peleckis, K., Krutinis, M., & Slavinskaitė, N. (2013). Daugiakriterinis alkoholio pramonės
įmonių pagrindinės veiklos efektyvumo vertinimas.

37.Ioanni Schiniotakis, N. (2012). Profitability factors and efficiency of Greek banks. EuroMed
Journal of Business, 7(2), 185-200.
38. Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa istanbul
review, 18(4), 329-340.VERMA

39.Olson, E. M., & Slater, S. F. (2002). The balanced scorecard, competitive strategy, and
performance. Business Horizons, 45(3), 11-16.

40. Vijayakumar, A., & Tamizhselvan, P. (2010). Corporate size and profitability: An empirical
analysis. Journal for Bloomers of Research, 3(1), 44-53.

41. Papadogonas, T. A. (2007). The financial performance of large and small firms: evidence from
Greece. International Journal of Financial Services Management, 2(1-2), 14-20.

42. Lee, J. (2009). Does size matter in firm performance? Evidence from US public firms.
international Journal of the economics of Business, 16(2), 189-203.

43. Amato, L. H., & Burson, T. E. (2007). The effects of firm size on profit rates in the financial
services. In Allied Academies International Conference. Academy for Economics and Economic
Education. Proceedings (Vol. 10, No. 1, p. 1). Jordan Whitney Enterprises, Inc.

44. Falope, O. I., & Ajilore, O. T. (2009). Working capital management and corporate profitability:
evidence from panel data analysis of selected quoted companies in Nigeria. Research journal of
business management, 3(3), 73-84.

45. Hall, B. J., & Liebman, J. B. (1998). Are CEOs really paid like bureaucrats?. The Quarterly
Journal of Economics, 113(3), 653-691.

46. Nourayi, M. M., & Daroca, F. P. (2008). CEO compensation, firm performance and operational
characteristics. Managerial Finance, 34(8), 562-584.

47. Ittner, C. D., & Larcker, D. F. (1997). Product development cycle time and organizational
performance. Journal of Marketing Research, 34(1), 13-23.
 48. Gürlek, M., & Cemberci, M. (2020). Understanding the relationships among knowledge-
oriented leadership, knowledge management capacity, innovation performance and
organizational performance: A serial mediation analysis. Kybernetes, 49(11), 2819-2846.

49. Ntim, C. G. (2009). Internal corporate governance structures and firm financial performance:
Evidence from South African listed firms (Doctoral dissertation, University of Glasgow).

50. Forbes, K. J., & Rigobon, R. (2002). No contagion, only interdependence: measuring stock
market comovements. The journal of Finance, 57(5), 2223-2261.

51. Chugh, L. C., Meador, J. W., & Kumar, A. S. (2011). Corporate governance and firm
performance: evidence from India. Journal of finance and accountancy, 7, 1.

52. Javed, A. Y., & Iqbal, R. (2007). Relationship between corporate governance indicators and firm
value: A case study of Karachi stock exchange.
53. Burkart, M., & Panunzi, F. (2006). Agency conflicts, ownership concentration, and legal
shareholder protection. Journal of Financial intermediation, 15(1), 1-31.

54. Bohren, J., Foote, T., Keller, J., Kushleyev, A., Lee, D., Stewart, A., ... & Satterfield, B. (2009).
Little ben: The ben franklin racing team’s entry in the 2007 darpa urban challenge. The DARPA
Urban Challenge: Autonomous Vehicles in City Traffic, 231-255.

55. Jensen, G. R., Solberg, D. P., & Zorn, T. S. (1992). Simultaneous determination of insider
ownership, debt, and dividend policies. Journal of Financial and Quantitative analysis, 27(2), 247-
263.

56. Kaserer, C., & Moldenhauer, B. (2008). Insider ownership and corporate performance: evidence
from Germany. Review of Managerial Science, 2, 1-35.

57. Su, D., & Vo, X. V. (2010). The Effect of Financing Decision on Firm Performance: A Case of
Tanzania. International Journal of Business and Management, 5(12), 159-171.

58. Sarykalin, S., Serraino, G., & Uryasev, S. (2008). Value-at-risk vs. conditional value-at-risk in
risk management and optimization. In State-of-the-art decision-making tools in the information-
intensive age (pp. 270-294). Informs.

59. Love, I., & Rachinsky, A. (2007). Corporate governance, ownership and bank performance in
emerging markets: evidence from Russia and Ukraine. World Bank, Working Paper.

60. Succurro, M., & Mannarino, L. (2014). The impact of financial structure on firms probability of
bankruptcy: A comparison across western Europe convergence regions. Regional and Sectoral
Economic Studies, 14(1), 81-94.

61. Cai, J., & Zhang, Z. (2011). Leverage change, debt overhang, and stock prices. Journal of
Corporate Finance, 17(3), 391-402.
 62. Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal
of accounting and economics, 42(3), 335-370.

63. Aivazian, V. A., Ge, Y., & Qiu, J. (2005). The impact of leverage on firm investment:
Canadian evidence. Journal of corporate finance, 11(1-2), 277-291.

64. Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory
of investment. The American economic review, 48(3), 261-297.

65. Eriotis, N., & Vasiliou, D. (2004). Dividend policy: an empirical analysis of the Greek market.
International Business & Economics Research Journal (IBER), 3(3).

66. Myers, S. C. (1984). Capital structure puzzle.

67. Frank, M. Z., & Goyal, V. K. (2008). Trade-off and pecking order theories of debt. Handbook
of empirical corporate finance, 135-202

68. Abu-Abbas, B. M., Alhmoud, T., & Algazo, F. A. (2019). Financial leverage and firm
performance evidence from Amman stock exchange. The European Journal of Comparative
Economics, 16(2), 207-237.

69. Mukras, M. S. (2015). Financial leverage and performance of listed firms in a frontier market:
Panel evidence from Kenya.

70. Anis, W., Imtiaz, I., & Qamar, H. (2022). Impact Of Financial Leverage On Firm Performance
With Moderating Role Of Corporate Governance Index: In Light Of Agency Theory. Webology,
19(3).

71. Chen, H. (2020). The Impact of Financial Leverage on Firm Performance-Based on the
Moderating Role of Operating Leverage.

72. Vithessonthi, C., & Tongurai, J. (2015). The effect of leverage on performance: Domestically-
oriented versus internationally-oriented firms. Research in International Business and Finance, 34,
265-280.

73. Ibhagui, O. W., & Olokoyo, F. O. (2018). Leverage and firm performance: New evidence on
the role of firm size. The North American Journal of Economics and Finance, 45, 57-82.

74. Ali, J., Tahira, Y., Amir, M., Ullah, F., Tahir, M., Shah, W., ... & Tariq, S. (2022). Leverage,
ownership structure and firm performance. Journal of Financial Risk Management, 11(1), 41-65.

75. Raza, M. W. (2013). Affect of financial leverage on firm performance. Empirical evidence
from Karachi Stock Exchange.

76. Ma’in, M., Keshminder, J. S., & Ahmad Afindi, K. S. (2022). The effects of financial leverage
on firm performance in shariah-listed consumer products & services firms. Asian-Pacific
Management Accounting Journal, 17(1), 223-248.
 77. Puri, S. (2023). Interactions of Leverage and Firm Performance: The Moderating Effects of
Agency Costs. Rere Āwhio – Journal of Applied Research and Practice, 3, 86–94.
https://doi.org/10.34074/RERE.00310

78. Circiumaru, D., Siminica, M., & Marcu, N. (2010). A study on the return on equity for the
Romanian industrial companies. Annals of University of Craiova–Economic Sciences Series, 2(38),
94-103.

79. Dey, R. K., Hossain, S. Z., & Rahman, R. A. (2018). Effect of corporate financial leverage on
financial performance: A study on publicly traded manufacturing companies in Bangladesh. Asian
social science, 14(12), 124.

80. Hongli, J., Ajorsu, E. S., & Bakpa, E. K. (2019). The effect of liquidity and financial leverage
on firm performance: Evidence from listed manufacturing firms on the Ghana stock exchange.
Research Journal of Finance and Accounting, 10(8), 91-100.

81. Iqbal, U., & Usman, M. (2018). Impact of financial leverage on firm performance: Textile
composite companies of Pakistan. SEISENSE Journal of Management, 1(2), 70-78.

82. Arhinful, R., & Radmehr, M. (2023). The effect of financial leverage on financial
performance: evidence from non-financial institutions listed on the Tokyo stock market. Journal of
Capital Markets Studies, 7(1), 53-71.

83. Vithessonthi, C., & Tongurai, J. (2015). The effect of leverage on performance:
Domestically-oriented versus internationally-oriented firms. Research in International Business and
Finance, 34, 265-280.

84.Abu-Abbas, B. M., Alhmoud, T., & Algazo, F. A. (2019). Financial leverage and firm
performance evidence from Amman stock exchange. The European Journal of Comparative
Economics, 16(2), 207-237.
85. Akhtar, S., Javed, B., Maryam, A., & Sadia, H. (2012). Relationship between financial
leverage and financial performance: Evidence from fuel & energy sector of Pakistan.
European Journal of Business and management, 4(11), 7-17.
86. Al-Taani, K. (2013). The relationship between capital structure and firm performance:
evidence from Jordan. Journal of Finance and Accounting, 1(3), 41-45.
87. Kaluarachchi, D. G. P., Fernando, A. A. J., & Mallawarachchi, R. (2021). The
relationship between financial leverage and the performance of Sri Lankan listed
manufacturing companies.
88. Inam, A., & Mir, G. M. (2014). The impact of financial leverage on firm performance
in fuel and energy sector, Pakistan. European Journal of Business and Management, 6(37),
339-347.
 89. Javeed, L., & Tabassam, R. (2018). Financial leverage and financial performance:
Empirical evidence from listed textile industry of Pakistan. International Journal of
Accounting and Financial Reporting, 8(4), 457.
90. Abubakar, A. (2016). Financial leverage and firms' performance: A study of quoted
companies in the Nigerian stock exchange. In Conference Paper.
91. Pandey, K. D., & Sahu, T. N. (2017). Financial leverage, firm performance and value:
With reference to Indian manufacturing firms. Asian Journal of Research in Banking and
Finance, 7(7), 265-274.
92. Laila, N., & Akhter, T. (2021). Financial leverage and its impact on earning per share.
IOSR Journal of Economics and Finance (IOSR-JEF), 12(1), 1-7.
93. Doğan, M. (2013). Does firm size affect the firm profitability? Evidence from Turkey.
Research Journal of Finance and Accounting, 4(4), 53-59.
94. Melitz, M. J., & Ottaviano, G. I. (2008). Market size, trade, and productivity. The
review of economic studies, 75(1), 295-316.
95. Komnenic, B., & Pokrajčić, D. (2012). Intellectual capital and corporate performance
of MNCs in Serbia. Journal of intellectual capital, 13(1), 106-119.
96. Bryson, A., Freeman, R. B., & Grajek, M. (2013). Executive Compensation and Firm
Performance: Evidence from a Panel of Canadian Public Firms. Industrial and Labor Relations
Review, 66(2), 471–498.

97. Safari, M., & Meriläinen, J.-M. (2019). CEO Compensation and Firm Performance: An
Empirical Investigation of UK Panel Data. Journal of Economic Studies, 46(2), 472–491.

98. Kang, S.-W., & Nam, K.-M. (2020). CEO Compensation and Firm Performance: A Panel Data
Analysis. Journal of Open Innovation: Technology, Market, and Complexity, 6(4), 160.

99. Bloom, N., & Van Reenen, J. (2007). CEO Compensation and Firm Performance: Evidence from
the UK. Journal of the European Economic Association, 5(5), 1078–1117.

100. Leal, R., & Carvalhal-da-Silva, A. (2017). CEO Compensation and Firm Performance:
Evidence from Brazil. Journal of Economics and Finance, 41(1), 151–168.

101. Pandey, N., & Dash, M. K. (2016). Growth Rate and Firm Performance: A Study of
Manufacturing Firms in India. Global Business Review, 17(4), 918–930.

102. Francioni, B., & Imbriani, M. (2018). The Impact of Growth Rate on Firm Performance:
Empirical Evidence from European Companies. Journal of Small Business Strategy, 28(1), 71–83.
 103. Kaya, A. S., & Ozdemir, N. (2020). Firm Growth and Performance: Empirical Evidence from
Turkish Manufacturing Firms. International Journal of Economics, Commerce and Management, 8(7),
207–224.

104. Li, M., & Zhang, X. (2021). Growth and Performance: Empirical Evidence from Chinese
Listed Firms. Emerging Markets Finance and Trade, 57(5), 1226–1242.

105. Antonelli, C., Crespi, F., & Scellato, G. (2012). High-Growth Firms and Firm Performance: A
Negative Relationship? Journal of Small Business Management, 50(2), 380–407.

106. Banerjee, A., & Datta, D. (2016). Growth and Firm Performance: A Study of Indian
Manufacturing Firms. Vision: The Journal of Business Perspective, 20(4), 304–316.

107. Hongli, J., Ajorsu, E. S., & Bakpa, E. K. (2019). The effect of liquidity and financial
leverage on firm performance: Evidence from listed manufacturing firms on the Ghana stock
exchange. Research Journal of Finance and Accounting, 10(8), 91-100.
108. Fang, V. W., Noe, T. H., & Tice, S. (2009). Stock market liquidity and firm value.
Journal of financial Economics, 94(1), 150-169.
109. Farooq, O., & Bouaich, F. Z. (2012). Liquidity and firm performance: evidence from
the MENA region. International Journal of Business Governance and Ethics, 7(2), 139-152.
110. Dalvi, M. R., & Baghi, E. (2014). Evaluate the relationship between company
performance and stock market liquidity. International Journal of Academic Research in
Accounting, Finance and Management Sciences, 4(1), 136-144.
111. Raja, J., & Kumar, A. S. (2005). Influence of Age and Size on Firm Performance-A
Comparative Study of Manufacturing and Service Sectors. Asia Pacific Business Review, 1(2),
91-103.
112. NGUYEN, P. A., NGUYEN, A. H., NGO, T. P., & NGUYEN, P. V. (2019). The
relationship between productivity and firm's performance: Evidence from listed firms in
Vietnam stock exchange. The Journal of Asian Finance, Economics and Business, 6(3), 131-
140.
113. Akben-Selcuk, E. (2016). Does firm age affect profitability. Evidence from turkey.
International Journal of Economic Sciences, 5(3), 1-9.

114. Rahman, J. M., & Yilun, L. (2021). Firm size, firm age, and firm profitability: evidence from
China. Journal of Accounting, Business and Management, 28(1), 101-115.