A Study of Malaysian Pharmaceutical Companies on Financial Leverage and Firm Performance

Nurul Hazwani Mawaddah, Abd Kadir and Nurul Syuhada, Zaidi (2024) A Study of Malaysian Pharmaceutical Companies on Financial Leverage and Firm Performance. UNIMAS Review of Accounting and Finance, 8 (1). pp. 147-159. ISSN 2590-3543

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Abstract

This study investigates the relationship between financial leverage and firm performance among pharmaceutical companies in Malaysia, with specific objectives of assessing the impact of debt-to-equity ratio (DR) and interest rates on return on assets (ROA).Using a sample of seven publicly traded pharmaceutical firms listed on BursaMalaysia and secondary data derived from their financial statementsfor the period of 2011-2020, the study evaluates firm size, liquidity, and profitability as key variables. The results reveal a significant positive relationship between financial leverage and ROA, contrary to prior studies that report a negative correlation. Firm size emerges as a critical factor, with larger firms exhibiting higher profitability but also a greater likelihood of financial distress. The findings suggest that Malaysian pharmaceutical companies should strategically manage their debt-to-equity ratios, optimize resource allocation, and explore research and development opportunities to enhance performance. Future research should expand the dataset to include firms outside the main market and investigate additional factors, such as short-term and long-term debt, influencing firm performance.

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