IMPACT OF LEVERAGE AND MANAGERIAL SKILLS ON FIRM PERFORMANCE

The purpose of this study is to investigate the effect of leverage and managerial skills on return for shareholders. The proportion of debt in the total capital structure of the firm is of particular importance in this study. Leverage is assessed by total debt and long-term debt. Managerial skills are assessed by education level and experience of the CEO of each company. Stockholder's return is measured by return on equity. In this study, I apply panel data analysis on a sample of 25 companies from the year 2009 to the year 2014.The companies have been chosen from agricultural sector in Pakistan. Results of panel data analysis indicate that there is a significant and positive relationship between total debt of a firm and return on equity. Similarly, the results indicate a significant and negative relationship between total debt of a firm and return on equity. Education level of CEO and experience of CEO are found to have a significant and positive relationship with return on equity. However, long-term debt shows a negative but significant relationship with return on equity. The results suggest that as the debt of a company increases, return for shareholders decreases. Similarly, if only long-term debt is increased, stockholders' return decreases. Hence, investors should consider factors such as total debt of a company and skill level of CEO when evaluating returns on equity.