Abstract:
This study examined the effect of financial leverage on the performance of public
companies during COVID-19 pandemic in Tanzania. The pandemic has precipitated
unprecedented global economic challenges, significantly impacting various sectors,
including public companies reliant on financial leverage. As these companies navigate the
complexities of economic uncertainty, understanding the implications of different levels
of financial leverage becomes crucial for assessing their performance and resilience
during crisis periods. The study was guided by the following specific objectives; to
investigate the effect of long-term debts on the performance of public companies during
COVID-19 in Tanzania, to investigate the effect of short-term debts on the performance
of public companies during COVID-19 in Tanzania and lastly to determine the effects of
public companies liquidity on their performance during COVID-19 in Tanzania. The study
was guided by the Trade-off Theory. The research used positivism research philosophy.
The study employed a quantitative approach alongside an explanatory research design.
The researcher employed panel data (longitudinal data) collected from DSE companies'
audited financial statements from the beginning of the COVID-19 pandemic, 2020 to
2021, for 29 companies. The study, therefore, has a total sample size of 58 observations.
The unit root characteristic of the variables using the Im Pesaran-Shin Unit root test was
examined by the researcher. The findings indicated that all variables are integrated of
order 1, following the I (1) process. The researcher employed panel (pooled) dynamic
OLS to examine the relationship among the variables. The findings indicated that short term debts and long-term debts had a negative significant relationship with firm
performance during COVID-19, while liquidity had a positive and significant relationship
with firm performance during COVID-19. This indicates that companies with a higher
liquidity ratio are more likely to earn more, thereby improving their financial performance.
These results suggest that a company's financial performance improves when they operate
based on a lower debt-to-equity ratio. The researcher recommends that public companies
should ensure they have a significant amount of cash and cash equivalents set aside to
meet erratic events to secure their financial performance and goodwill.
