The Impact of Financial Leverage on Financial Performance and Market Value: An Applied Econometric Study on Private Traditional Banks Listed on the Damascus Securities Exchange

Abstract

The study aimed to highlight the impact of financial leverage on the financial performance and market value of the shares of private traditional banks in Syria. This was achieved by examining the effect of financial leverage on market value, the effect of financial leverage on financial performance, and the effect of financial performance on the market value of the shares of private traditional banks listed on the Damascus Securities Exchange.

The applied econometric methodology was adopted, with the study population consisting of 11 traditional banks during the period (2009–2023). The hypotheses related to the study variables—financial leverage, financial performance, and market value—were tested using panel data and econometric models (fixed and random effects models).

The study concluded that there is a positive effect of financial leverage, measured by the equity multiplier, on the performance of banks, and a negative effect on the market value of bank shares. It was also shown that financial leverage, measured by the ratio of debt to total assets, has a negative effect on bank performance and a positive effect on the market value of shares. Moreover, bank performance itself has a negative effect on the market value of shares. Regarding the control variables, operating efficiency has no effect on bank performance but has a positive effect on the market value of shares, while asset quality has a negative effect on both bank performance and the market value of shares.