The Effect Of Firm Size And Operating Leverage On Stock Returns: Evidence From Pakistan Stock Exchange

  • Haider Ali
  • Dr Naveed Farooq
  • Dr Azhar Khan
  • Farah Nadir

Abstract

This study provides evidence in support of the size effect, which posits that smaller companies generate greater profits in both rapidly developing markets and volatile markets. Furthermore, the results of the current study indicate that the application of operating leverage does not exert any discernible influence on stock returns. The empirical evidence derived from data obtained from non-financial companies listed on the KSE-100 Index leads us to the conclusion that the Pakistani market exhibits adherence to the CAPM, Fama, and French Models. The aforementioned proof was unearthed subsequent to our thorough examination of the market. To provide greater precision, the metrics utilized for assessing the magnitude of a company encompass the debt-to-equity ratio (DOL) and the aggregate assets held by the entity. In order to achieve the objective of assessing the influence of firm size and operating leverage on stock returns, a fixed effect regression model is employed. This action is undertaken with the intention of achieving the intended result. The analysis yielded findings indicating a negative correlation between firm size and share returns. There is no observed association between the application of operating leverage and the resultant returns generated by firms in the Pakistani market.

Published
2023-11-27