Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


A Meta Analysis of the Effect of Usage of Debt on Valuation of the Company

Author(s): Shweta Goel

Optimum composition of debt and equity is an important factor in assessing the valuation of the company. Companies often faced a problem in choosing the optimum amount of debt in their capital structure. This paper aimed at investigating the relationship between debt and earnings of the company using meta-analysis to ascertain what has been accounted in previous literatures. Using Forest Plot, Confidence Interval: Hypothesis Testing, Test of Heterogeneity and Publication Bias analysis and a sample of published journal articles, it is evident that the Value of business is independent of Debt usage and firms cannot increase the value of its business by increasing the level of Debt. However, increase in debt-to-equity ratio beyond a certain level will negatively affect their businesses as it increases the level of risk in the business. Therefore, capital structure is not a good fit in explaining changes in the valuation of company.

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