AN IMPLICATION OF SIGNALING THEORY TO EXAMINE IMPACTS OF FINANCIAL LEVERAGE ON FIRM PERFORMANCE: A STUDY OF ISLAMIC BANKS IN ASIAN REGION

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Abdul Rahim, Dr. Muhammad Muddasar Khan, Waqas Iftikhar, Shagufta Ashraf, Shahid Mehmood

Abstract

Financial Leverage is most influential factor for overall productivity of the firms, thus not ignorable. Currently abundant literature is available on leverage of number of firms in different regions. Islamic Banking is nowadays emerging field need attention of the researchers. Fewer studies are available on financial leverage and Islamic Banks of Asian region are almost ignored by the researchers. Thus, this research is designed for analyzing the impact of the financial leverage on performance of the Islamic Banks in the countries of Asian region.


The research study comprises of the population of Islamic Banks from Asian region. Twenty five Islamic banks from Asian economies are selected for the time period (2010 -2019) is used, and this data have been retrieved from the Thomson Reuters Data Stream. Researcher deployed latest version of E-views for data analysis in current study.


The results of current research work are providing strong evidence in support of the Signaling Theory. Signaling theory describes that if there is higher capital then the performance of the banks will be much better. The findings revealed that financial leverage is on the level in Islamic Banks that totally depends upon the flexibility ratio for the adjustment of the value of debt and their power of earning.


 

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