Financial Leverage and Market Return: Empirical Evidence from US Market Indices.

Abstract: This paper is to empirically investigate the relationship between leverage and firm performance if any exists, “what is the direction of the relation?” as well as test the possibility of a non-monotonic relationship. Panel regression analysis is used for this study while using asset tangibility as an instrumental variable. The results reveal that an increase in financial leverage has a negative, statistically significant impact on market return at the 10% level.