The effect of debt to equity ratio on the expected common stock returns of all the companies in the Philippine Stock Exchange index

• Main Authors: Bernardo, Chris Sebastian, Mendoza, Mary Giell, Montecillo, Lorenzo Luis, Villalonga, Karl Daimler
• Format: text
• Language: English
• Published: Animo Repository 2009
• Subjects: Debt-to-equity ratio > Philippines; Debt > Philippines; Equity > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18440
• Institution: De La Salle University

This paper explains the effect of debt to equity ratio (DER) to the expected common stock return controlling for beta and firm size. The proponents used the stocks in the Philippine Stock Exchange index (PSEi) and examined the years 1996-2007 as the test period. The researchers employ the Fama-Macbeth (1973) methodology and OLS regression analysis as the statistical tool to analyze the effect of debt to equity ratio. Results show that DER is significantly negative and does not proxy for risk in the Philippine market. The paper also rejects the assumption that beta is an adequate measure of risk and is positively related with returns. The evidence also suggests that the firm size variable implies that in the Philippines, small cap firms don't always outperform big cap stocks.