The Relation between Financial Leverage and Return on Equity of the Companies: A Research on the Companies Traded on İstanbul Stock Exchange in the Base of Industries

Abstract

The purpose of this study is to research the effect of financial leverage ratios on Return on Equity (ROE). This research was carried out on the companies traded on İstanbul Stock Exchange on the base of five industries, IT, food, mining, textile and construction, using the financial leverage-and ROE ratios during the 22 years’ quarter period’s from 1991Q1 to 2012Q4. The data used in research were obtained from FİNNET Financial Analyse Program. The data were analysed in E-views 6.0 program using ARDL approach. For the results of estimation Microfit 4.1 software was applied. The results of this study reveal that financial leverage ratio affect the ROE in the industries IT, food, mining and textile negatively but in the construction pozitively and that these effects are statistically significant.