Abstract

This study identified the reasons behind the discrepancies in the result from the past empirical studies about the effect of leverage on the firm value. Most importantly, by using the Malmquist productivity change index and its components as the proxy for corporate performance, the effect of leverage on corporate performance and the effect of corporate performance on leverage are identified. The results reveal that leverage no not affect the Malmquist productivity change index but the micro analysis shows that leverage defined in total debts to total assets affects technical change significantly but do not affects efficiency change. The reserve causality tests show that the Malmquist productivity change index and its component do not affect leverage. Hence it is proved that leverage do not improve the corporate performance.

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