The Lahore Journal
of Business

The Lahore Journal
of Business

Lahore Journal of Business

(HEC recognized journal in “Y” category)

The Lahore Journal of Business is aimed at providing a specialized forum for dissemination of qualitative and quantitative research in various areas of business administration. The LJB invites researchers, policy makers and analysts to submit original theoretical and empirical papers that explore and contribute to the understanding of various areas in the business domain. The Journal aims at bringing together state-of-art research findings, particularly from emerging markets, in various business disciplines including (but not limited to) accounting, banking, management, marketing, finance, investments, human resource management and organizational behavior.

Exploring the Nonlinear Relationship Between Leverage and Corporate Profitability

https://doi.org/10.35536/ljb.2025.v13.i1.a1

  • Qazi Bilal Amin
  • bilalaminqazi@gmail.com
  • MS Scholar Institute of Management Sciences, University of Haripur, Haripur, Pakistan.
  • Zia ur Rehman
  • zia.rehman@uoh.edu.pk
  • Associate Professor Institute of Management Sciences, University of Haripur, Haripur, Pakistan.
  • Asad Khan
  • asadkhan@uoh.edu.pk
  • Assistant Professor Institute of Management Sciences, University of Haripur, Haripur, Pakistan.

Submitted

November 22, 2023

Accepted

November 22, 2023

Accepted

November 22, 2023

  • Received
  • 21st March 2024
  • Revised
  • 5th August 2025
  • Accepted
  • 8th December 2025
  • Download
Full text PDF

Abstract

This study uses a nonlinear Hansen threshold regression model to analyze the link between leverage and corporate profitability, with firm size as a threshold variable. Data for the study is collected from the State Bank of Pakistan and firms’ annual reports for the period 2010– 2020. Our findings reveal important insights and patterns pertaining to the interrelationship between leverage, firm size, and corporate profitability. More specifically, results reveal that there are no threshold effects of firm size on the leverage corporate profitability relationship. This study contributes significantly to the literature, as most empirical studies in this area use linear models but fail to provide meaningful explanations. This study is useful for managers and policymakers as it provides valuable insights about the intricate interrelationship between firm size, leverage, and corporate profitability.

Keywords

Leverage

corporate profitability

firm size

return on assets

total debt

This work is licensed under LJB.

  • Citation

Amin, Q. B., Rehman, Z., & Khan, A. (2025). Exploring the Nonlinear Relationship Between Leverage and Corporate Profitability. The Lahore Journal of Business, 13(1), 01-22.

https://doi.org/10.35536/ljb.2025.v13.i1.a1

  • References
  1. Aboramadan, M., & Kundi, Y. M. (2023). Emotional culture of joy and happiness at work as a facet of wellbeing: A mediation of psychological safety and relational attachment. Personnel Review, 52(9), 2133–2152.
  2. Adam, M., & Hanafi, A. (2022, March). Readiness for organizational change. In 7th Sriwijaya Economics, Accounting, and Business Conference (SEABC 2021) (pp. 360–368). Atlantis Press.
  3. Alfes, K., Shantz, A. D., Truss, C., & Soane, E. C. (2013). The link between perceived human resource management practices, engagement and employee behaviour: A moderated mediation model. The International Journal of Human Resource Management, 24(2), 330–351.
  4. Allen, N. J., & Meyer, J. P. (1990). The measurement and antecedents of affective, continuance and normative commitment to the organization. Journal of Occupational Psychology, 63(1), 1–18.
  5. Alqudah, I. H. A., Carballo-Penela, A., & Ruzo-Sanmartín, E. (2022). High performance human resource management practices and Readiness for change: An integrative model including affective commitment, employees’ performance, and the moderating role of hierarchy culture. European Research on Management and Business Economics, 28(1), 100177.
  6. Anderson, J. C., & Gerbing, D. W. (1988). Structural equation modelling in practice: A review and recommended two-step approach. Psychological Bulletin, 103(3), 411.
  7. Appelbaum, E., Bailey, T., Berg, P., Kalleberg, A. L., & Bailey, T. A. (2000). Manufacturing advantage: Why high-performance work systems pay off. Cornell University Press.
  8. Armenakis, A. A., & Harris, S. G. (2002). Crafting a change message to create transformational readiness. Journal of Organizational Change Management, 15(2), 169–183.
  9. Armenakis, A. A., Harris, S. G., & Mossholder, K. W. (1993). Creating readiness for organizational change. Human Relations, 46(6), 681–703.
  10. Ashiru, J.-A., Erdil, G. E., & Oluwajana, D. (2022). The linkage between high performance work systems on organizational performance, employee voice and employee innovation. Journal of Organizational Change Management, 35(1), 1–17.