FINANCIAL LEVERAGE AND FIRM PERFORMANCE EVIDENCE FROM CHINESE PUBLIC LISTED SHIPBUILDING COMPANIES

Abstract

The issue of the financial leverage of firms is one of the most debated problems in the financial world. According to capital structure theory, financial leverage always affects the stock market value of firms and therefore their viability, while one of the most negative results of the crash of 2008 and the persisting crisis (excess supply in markets of labor and money) is their ongoing steep decline of lending by credit institutions and other sources. Thus, the main objective of this study is to find out the association between financial leverage and firm performance among Chinese public listed shipbuilding companies. The determinants of firm performance are examined through static factors like asset tangibility, firm size, and operating leverage. The sample of this study is taken from 32 Chinese public listed shipbuilding firms and the secondary data is collected from each company’s financial report from 2014 to 2018. The analysis software used in the study Smart PLS, which includes descriptive analysis, correlation analysis. The finding of this study supports the MM theory, which shows that asset tangibility and firm size is positively related to firm performance while the operating leverage has a negative effect on firm performance. Lastly, some recommendations are provided.