THE INFLUENCE OF FINANCIAL LEVERAGE ON FIRM VALUE: A QUANTITATIVE APPROACH

This study examines how capital structure affects firm value using a sample of 100 firms. By analyzing debt-equity ratios through regression models, it finds that an optimal mix of debt and equity maximizes firm value, while excessive leverage increases financial distress risks, lowering valuation. The research controls for firm size, industry type, and economic conditions to ensure robust results. Findings suggest that firms can enhance shareholder wealth by strategically balancing financing sources. The study contributes to financial theory by providing empirical evidence on capital structure decisions and their market implications. It offers practical insights for corporate managers designing financing strategies and investors evaluating firm performance. The results are particularly relevant in dynamic economic environments where financing decisions critically influence competitiveness. The capital structure of a firm—defined as the mix of debt and equity used to finance its operations—plays a crucial role in determining its overall value. Theories of capital structure, such as the Modigliani-Miller theorem, trade-off theory, and pecking order theory, explore how the choice between debt and equity affects firm performance, cost of capital, and ultimately shareholder wealth. A well-optimized capital structure can reduce the firm’s weighted average cost of capital (WACC) and enhance its market valuation, while an improper mix can increase financial risk and limit growth opportunities. This topic remains central to corporate finance because understanding the dynamics between leverage and firm value enables managers to make informed financing decisions that align with strategic objectives and market conditions. Keywords: Capital Structure, Firm Value, Debt-to-Equity Ratio, Cost of Capital, Weighted Average Cost of Capital (WACC), Leverage. financial distress, regression analysis, shareholder wealth.