The Impact of Financial Leverage and Market Size on Stock Returns on the Dhaka Stock Exchange: Evidence from Selected Stocks in the Manufacturing Sector
International Journal of Economics, Finance and Management Sciences
Volume 3, Issue 1, February 2015, Pages: 10-15
Received: Dec. 19, 2014; Accepted: Jan. 12, 2015; Published: Jan. 22, 2015
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Authors
Mohammad Nayeem Abdullah, School of Business, Chittagong Independent University, Chittagong, Bangladesh
Kamruddin Parvez, School of Business, Chittagong Independent University, Chittagong, Bangladesh
Tarana Karim, School of Business, Chittagong Independent University, Chittagong, Bangladesh
Rahat Bari Tooheen, School of Business, Chittagong Independent University, Chittagong, Bangladesh
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Abstract
This paper examines the impact of financial leverage and market size of selected stocks on stock returns. Ordinary Least Square (OLS) regression models were used to examine the relationship between the dependent and independent variables. The leverage of the selected firms was estimated from the annual financial reports covering a period of five years from 2008 to 2012 of five corporations operating in the manufacturing sector. Furthermore, average monthly stock prices of the selected stocks between 2008-2012 for Fu-Wang Ceramic, Fine Foods Limited, Olympic Industries, Metro Spinning and Rahim Textiles. The study established a significantly negative relationship between leverage and stock return when the overall industrial data is used. However at the individual firm level the relationship was not stable. Four out of the five selected companies (i.e. Fu-Wang Ceramic, Fine Foods Limited, Olympic Industries and Metro Spinning) all had negative leverage coefficients. Rahim Textile however, had a positive leverage coefficient. The paper also found the relationship between size and stock returns to be significantly positive. However, the size effect within the manufacturing sector was limited.
Keywords
Leverage, Returns, Financial Risk, Investor
To cite this article
Mohammad Nayeem Abdullah, Kamruddin Parvez, Tarana Karim, Rahat Bari Tooheen, The Impact of Financial Leverage and Market Size on Stock Returns on the Dhaka Stock Exchange: Evidence from Selected Stocks in the Manufacturing Sector, International Journal of Economics, Finance and Management Sciences. Vol. 3, No. 1, 2015, pp. 10-15. doi: 10.11648/j.ijefm.20150301.12
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