EFFECT OF FINANCIAL LEVERAGE ON PUBLIC COMPANIES PERFORMANCE DURING COVID-19 IN TANZANIA

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.