The Impact of Leverage on Stock Earnings: The Case of the Abu Dhabi Stock Market

Abstract

This study investigates the relationship between leverage and stock earnings in the Abu Dhabi stock market from 2006 to 2015, employing a time series computed tomography (CT) scan methodology. The dependent variable, earnings per share (EPS), is analyzed concerning various leverage ratios, including the Debt-to-Assets Ratio (DA), Debt-to-Property Ratio (DP), Long-Term Debt-to-Assets Ratio (LDA), and Long-Term Debt-to-Property Rights Ratio (LDP). Our findings reveal a positive effect of the DP ratio on leverage, while a negative impact is evident with the LDP ratio. Through a static analysis model, the study elucidates the short-run effects of leverage on earnings, characterized by the ratio of total debt to ownership using autoregression vectors. These insights enhance our understanding of the intricate relationship between leverage and stock earnings in the Abu Dhabi stock market.