Accounting disclosure for financial instruments : financial leverage risk and liquidity and their impact on earnings per share and dividends yield

Abstract EN

Accounting disclosure for financial instruments through analyzing the actual accounting data are used as a vital market measures for financial leveragerisk (debt and fixed costs) and assist in decision making as adding financial leverage always adds risk to both the levered company and investor. Degree of financial leverage is an important factor in determining financial risk level and it has direct effect on dividends policy, as it causes intensification of the change in earnings per share percentage because if degree of financial leverage is larger, it may be negative by slight decrease in profit before interest and taxes.

The main objectives of this research are to examine the association between financial leverage and liquidity and their impact on earnings per share and dividends yield respectively.

The sample taken is 114 listed companies across different industries in Egyptian Stock Exchange for the period from year 2014 to 2019.

The Ordinary Least Square regression analysis is used to find the relations betweenThe Financial Leverage Risk (FLR) and Liquidity (LQ) as independent variables and Earnings per Share (EPS) and Dividends Yield (DY) as dependent variables for this research, using Profitability (ROE) and Industry type (IND) as control variables.

Financial leverage is fundamental as it affects a firm that needs to increase its growth opportunity, because of the need to maximize stakeholders rate of return and also because such decisions impact greatly the ability of firms to deal with the surrounding competitive financial environment.

Findings indicate that according to the correlation coefficients among the research variables, both earnings per share and dividends yield are negatively strong correlated with leverage and strong positively correlated with profitability, and has insignificant negative correlated with liquidity level, at 0.05 significant level.

This reveals that financial leverage and financial performance influences the dividends policy.