Financial Risk and Firms’ Value: An Empirical Study on BSE500 Company
Keywords:
PE Ratio, ROE, Financial Risk, Debt-Equity RatioAbstract
In the present competitive business environment the goal of each and every firm is to create and maximize value of an organisation. To achieve this goal company configure its capital structure and operating activity with deep interest. The type of capital structure generates the financial risk of a business organisation. The main objective of this study is to find out the relationship between debt-equity ratio and PE (as a proxy of firms’ value) as well as evaluate the effect of financial risk on firms’ value. A sample of 87 firms listed in BSE500 for a period of 15 years (2001-2016) was used. Data of selected firms were sourced from publish annual reports of copany. In order to achieve the set objectives, I have employed Regression Analysis and correlation analysis. Adjusted R2 is carried on to test level of significant of regression line. The Ordinary Least Square (OLS) methods is used for data analysis and for testing hypothesis. The study revealed that there is no significant relationship between financial risk and firms’ value but debt equity ratios have significantly low effect on firms’ value (PE) and equity return (ROE).
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