The Influence of Firm Leverage on Performance Among Listed Firms in Dar es Salaam Stock Exchange.

Abstract

Abstract. Many studies have looked at how firms make capital structure decisions. One important reasoning for capital structure decision is the consideration of agency costs and information asymmetry effects between the owners of the companies and the agents (managers of the companies). This study looked at the relationship between firm leverage and firm performance through the eyes of agency cost theory in the Tanzanian listed companies and thus expecting a positive relationship between the two. Panel data of 10 listed companies for 6 years was obtained for the fixed effect regression analysis of firm performance on firm leverage and other control variables. Results show that there is a negative relationship between firm leverage and firm performance in Dar es Salaam Stock Exchange (DSE) contrary to agency costs theory. Some studies have seen a similar trend in some countries, in Tanzania, the negative relationship can be explained by the underdeveloped and inefficient banking and corporate sector. Companies with low leverage have witnessed better financial performances.