THE FINANCIAL LEVERAGE EFFECT AND THE SOURCES OF FINANCING FOR ENTERPRISES IN POLAND FROM 2005-2018

Keywords: financial leverage, sources of financing, capital structure

Abstract

The optimal structure of financing has been a frequent subject of research in corporate finance management for decades. Financial leverage and its effects are closely related to this topic. Thanks to the positive effect of financial leverage, a company may obtain a higher return on equity. The aim of this article is to present a practical approach to the financial leverage effect and to analyse whether decisions about the degree of credit and loans in the financing of enterprises were reasonable from the point of view of their impact on the return on equity. The analysis covered the years 2005-2018. The paper examines the question of whether enterprises in Poland had the opportunity to use debt to increase ROE. It also analyses whether decisions on the level of credit and loan within the capital structure were correlated with the level of the operating margin(s) of assets over the cost of debt, which is a requirement for a positive effect from financial leverage. It was shown that in the majority of the analysed years, enterprises could increase their return on equity by increasing their share of debt financing, but it was not known whether these decisions were made by taking into account the phenomenon and the leverage effect.

Downloads

Download data is not yet available.
Published
2020-06-10
How to Cite
Łach, K. (2020). THE FINANCIAL LEVERAGE EFFECT AND THE SOURCES OF FINANCING FOR ENTERPRISES IN POLAND FROM 2005-2018. Scientific Journal of Warsaw University of Life Sciences - SGGW - European Policies, Finance and Marketing, (23(72), 82-94. https://doi.org/10.22630/PEFIM.2020.23.72.7