The Impact of Financial Leverage on Shareholders Return and Profitability—An Evidence from Indian Textile Sector

This research examines the impact of financial leverage (FL) on the relationship between shareholder return (SR) and profitability. In this study, leverage was quantified using the debt-to-equity ratio, which is calculated by dividing total debt by equity. This metric indicates the extent to which a firm utilizes borrowed funds to achieve its profitability level. Due to investor sentiment regarding the function of debt, the findings of this investigation were inconclusive. Where an investor dislikes debt, the stock price declines, and vice versa. This is not necessarily because of the addition of debt to the capital structure. Rather, it also holds significant importance to see how magnificently the company managed to employ the borrowed funds to enhance its profitability. The better profitability will leads to better dividend pay-out. That would then make the stocks appear more attractive in the eyes of investors. The extent of price fluctuations following earnings announcements was higher than the normal fluctuation that occurred during the non-announcement period. This study used a quantitative, non-experimental research design to understand, in-depth, the relationship between financial leverage, shareholder returns, and the profitability of Indian listed textile firms on the National Stock Exchange (NSE). Sources of secondary data include the NSE and the websites of the listed companies. A finite sample of 83 companies listed in NSE India has been chosen for the study. The findings of the current research reveal that the presence of FL affects profitability significantly.