Exploring the Nonlinear Relationship Between Leverage and Corporate Profitability
- Qazi Bilal Amin
- bilalaminqazi@gmail.com
- MS Scholar 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.
- Zia ur Rehman
- zia.rehman@uoh.edu.pk
- Associate 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
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.
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