Analyzing the Impact of Financial Leverage on ROE and EPS in the Property and Real Estate Sector
##plugins.themes.bootstrap3.article.sidebar##
##plugins.themes.bootstrap3.article.main##
Abstract
This research investigates the intricate relationship between financial leverage and two key financial performance indicators, Return on Equity (ROE) and Earnings Per Share (EPS), within the property and real estate industry. By analyzing empirical data and conducting rigorous statistical analyses, this study has unveiled significant insights into the financial dynamics and decision-making processes that govern this dynamic sector. The findings indicate a robust, positive correlation between financial leverage and ROE, reaffirming the notion that judicious employment of debt financing can amplify profitability and returns for shareholders in the property and real estate industry. However, the analysis also reveals that the impact of financial leverage on EPS is more nuanced, reflecting the multifaceted nature of per-share profitability influenced by operational efficiency, market conditions, and industry-specific dynamics. The practical implications of these findings extend to companies, investors, and policymakers within the property and real estate sector. Companies can utilize these insights to optimize their debt structures, manage financial risk, and enhance their attractiveness to investors. These insights offer a roadmap for balanced financial decision-making, enabling companies to strike the right equilibrium between leveraging debt for growth and maintaining financial stability. This research not only contributes to the existing body of literature in corporate finance but also provides industry-specific evidence, fostering a deeper understanding of financial decision-making and its consequences within the property and real estate sector. As this sector continues to evolve, the findings from this study serve as a valuable compass for well-informed and strategic decision-making, enriching our comprehension of financial dynamics and shaping the future of companies, investors, and the industry itself.
##plugins.themes.bootstrap3.article.details##
Al-Tally, H. A. (2014). An investigation of the effect of financial leverage on firm financial performance in Saudi Arabia’s public listed companies. Victoria University.
Alcock, J., Baum, A., Colley, N., & Steiner, E. (2013). The role of financial leverage in the performance of private equity real estate funds. The Journal of Private Equity, 17(1), 80–91.
Barras, R. (2009). Building cycles: growth and instability. John Wiley & Sons.
Buckley, M., & Hanieh, A. (2014). Diversification by Urbanization: Tracing the Property‐Finance Nexus in D ubai and the G ulf. International Journal of Urban and Regional Research, 38(1), 155–175.
Chen, W. Y., & JIM, C. Y. (2010). Amenities and disamenities: A hedonic analysis of the heterogeneous urban landscape in Shenzhen (China). Geographical Journal, 176(3), 227–240.
Christiano, L. J., Motto, R., & Rostagno, M. (2010). Financial factors in economic fluctuations.
Damodaran, A. (2007). Return on capital (ROC), return on invested capital (ROIC) and return on equity (ROE): Measurement and implications. Return on Invested Capital (ROIC) and Return on Equity (ROE): Measurement and Implications (July 2007).
De Wet, J., & Du Toit, E. (2007). Return on equity: A popular, but flawed measure of corporate financial performance. South African Journal of Business Management, 38(1), 59–69.
Deboi, V., Kurmakhadov, H., & Li, M. (2021). Impact of financial leverage on the profitability of real estate companies: A quantitative study from Swedish Stock Exchange.
Enekwe, C. I., Agu, C. I., & Eziedo, K. N. (2014). The effect of financial leverage on financial performance: Evidence of quoted pharmaceutical companies in Nigeria. IOSR Journal of Economics and Finance, 5(3), 17–25.
Gunadi, I., Wiksuana, I., Purbawangsa, I. B. A., & Rahyuda, H. (2020). Impact of structural capital and company size on the growth of firm value through financial performance with good corporate governance as a moderating variable: Property and real estate business in Indonesia. International Journal of Economics & Business Administration (IJEBA), 8(4), 332–352.
Haran, M. E., Lo, D., McCord, M., Davis, P., & Lim, L. C. (2021). Impact of firm-level attributes on listed real estate company performance. Journal of Property Investment & Finance, 39(4), 323–348.
Hermawan, I., Sinaga, B. M., & Andati, T. (2020). External Factors with Government And Company Policies That Have an Impact on the Debt Service Coverage Ratio of Coal Companies. Jurnal Aplikasi Manajemen, 18(2), 371–382.
Hoag, J. W. (1980). Towards indices of real estate value and return. The Journal of Finance, 35(2), 569–580.
Jacobides, M. G., Knudsen, T., & Augier, M. (2006). Benefiting from innovation: Value creation, value appropriation and the role of industry architectures. Research Policy, 35(8), 1200–1221.
Khan, T. R., Islam, M. R., Choudhury, T. T., & Adnan, A. M. (2014). How earning per share (EPS) affects on share price and firm value.
Korten, D. C. (2009). Agenda for a new economy: From phantom wealth to real wealth. Berrett-Koehler Publishers.
Nassar, S. (2018). The impact of intellectual capital on firm performance of the Turkish real estate companies before and after the crisis. European Scientific Journal, January.
Ozdagli, A. K. (2012). Financial leverage, corporate investment, and stock returns. The Review of Financial Studies, 25(4), 1033–1069.
Pyhrr, S., Roulac, S., & Born, W. (1999). Real estate cycles and their strategic implications for investors and portfolio managers in the global economy. Journal of Real Estate Research, 18(1), 7–68.
Rayan, K. (2008). Financial leverage and firm value. University of Pretoria.
Rufus, O. A., & Ofoegbu, G. N. (2015). Impact of Capital Structure on Financial Performance of Construction and Real Estate Quoted Companies in Nigeria”.
Serpell, A., Kort, J., & Vera, S. (2013). Awareness, actions, drivers and barriers of sustainable construction in Chile. Technological and Economic Development of Economy, 19(2), 272–288.
Twinamatsiko, E., & Kumar, D. (2022). Incorporating ESG in decision making for responsible and sustainable investments using machine learning. 2022 International Conference on Electronics and Renewable Systems (ICEARS), 1328–1334.
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.