Firm-Specific Characteristics and Financial Leverage of Non- Financial Firms Listed at Dar es Salaam Stock Exchange

Abstract

This study examines the influence of firm-specific characteristics namely
profitability, asset tangibility, firm size, and growth opportunities on leverage
among non-financial firms listed on the Dar es Salaam Stock Exchange (DSE) in
Tanzania. Grounded in the trade-off and pecking order theories, the research
explores how these internal firm attributes shape leverage decisions in an
underexplored emerging market context. Leverage, the dependent variable, was
measured using short-term debt, long-term debt, and total debt ratios. The study
employed secondary data obtained from the audited financial statements of 11
non-financial firms listed on the DSE for the period 2016–2023, resulting in a
balanced panel dataset of 88 firm-year observations. Hypotheses were tested
using a combination of robust random-effects and robust fixed-effects panel
regression models. The findings reveal that profitability exerts a significant
negative effect on all measures of leverage, while growth opportunities
significantly increase total debt. Firm size was found to have no significant
impact on leverage, whereas asset tangibility positively affects long-term and
total debt but does not significantly influence short-term debt. These results
indicate that firm-specific characteristics are critical determinants of leverage in
Tanzanian non-financial firms. Based on these findings, the study recommends
that managers consider profitability when evaluating financing decisions, and
investors prioritize appropriate debt levels to mitigate bankruptcy risk.
Additionally, firms should strive for a balanced and sustainable debt structure to
enhance shareholder value and investor confidence. The study further suggests
that future research investigate other potential determinants of leverage,
including tax shields, ownership structure, business risk, liquidity, and dividend
payout policies, to deepen understanding of leverage dynamics in emerging
markets.