Leverage and Corporate Market Value: Empirical Evidence from Zimbabwe Stock Exchange

Abstract

The main objective of this paper is to investigate the effects of leverage on the Zimbabwe Stock Exchange (ZSE) listed non-financial companies for the period 2009-2012. The study empirically examined the effect of a firm's leverage along other risk factors namely dividend yield and size on its market value. The results show a positive relationship between a firm's market value and its long-term debt to equity choice. On the other hand, we find an inverse relationship between a firm's market value and its total debt to total capital ratio. Dividend yield and size are positively related with market value. In addition, an industry analysis and an examination of how the Zimbabwean corporate sector finances its growth were undertaken. We find evidence that capital structures and dividend policies vary across industries, and that firms rely much more on external finance than on internal finance.