Effects of Debt on Value of a Firm

Abstract

Capital structure has been studied extensively with the main focus on whether debt affects firm’s value or the proportion of debt usage is irrelevant to the individual firm’s value. This paper investigates the relationship between leverage and firm’s value, in Pakistani context, to show that what happens to value of a firm in face of changing financial leverage. Secondary data was obtained for this purpose from KSE and financial statements of hundred companies for six years. Regression analysis was carried out for the said relation. It was found that increase in leverage is positively related to the value of a firm.