Impact of Financial Leverage on the Payoffs to Stockholders and Market Value

This paper examines the effect of financial leverage on the shareholders’ return and market value of 50 Indian companies listed on NSE and BSE—10 each (five high leverage and five low leverage) from auto, cement, FMCG, oil and gas and pharmaceutical industries of India. Shareholders’ return has been calculated through earnings per share and return on equity ratio, while market value is measured through dividend payout and price-earning ratio. Linear regressions are used to quantify the effect of financial leverage on shareholders’ return and market value.