The Impact of financial leverage on firm performance in Zimbabwe: a case of furniture manufacturing SME’s

Author

Bwanya, Karen.

Title

The Impact of financial leverage on firm performance in Zimbabwe: a case of furniture manufacturing SME’s

Abstract

In this research a theoretical and an empirical framework that helps to analyse the impacts of financial leverage on manufacturing firms in Zimbabwe. The research used a case of SME’s at Glenview complex. The research objectives were to ascertain the effect of financial leverage on profitability, assess the relationship between financial leverage and liquidity of SME’s and to ascertain the effect of financial leverage on efficiency of SMEs. Secondary data came from HRM reports, financial reports and financial statements. Primary data came from key informant interviews. The firm profitability (return on equity) is positively associated with short term debt (0.1974),long term debt (0.0116) and negatively associated with equity (-0.4316). There is a significant negative relationship between the use of debt and firms profitability measured by return on equity which is in opposition to Modigliani and miller, agency theory and trade off theory. All these theories postulate that in the presence of corporate tax, profitable firms will be motivated to increase their financial leverage.Thers is a moderate leverage positively affected the financial performance of furniture manufacturing SMEs. These findings were in collaboration with results of Wainana (2014) of the 100 SMEs in Kenya which concluded that there was a positive relationship between financial leverage and profitability.

Date

June 2022

Publisher

BUSE

Keywords

Corporate tax,

Financial Leverage,

Furniture manufacturing SME’s,

Supervisor

Mr. S. Chaparadza,