Abstract
This study investigates the relationship between financial leverage and firm's performance within South Africa's technology industry. This study uses panel data from nine JSE-listed technology companies spanning 2013 to 2023, using a quantitative methodology to evaluate the impact of financial leverage, liquidity, operational efficiency, and profitability on Return on Equity (ROE). The analysis uses pooled OLS, fixed effects, and random effects regression models, with the Hausman test identifying the optimal model. Key explanatory factors include the Debt-to-Equity (D/E) ratio, Total Liabilities-to-Assets (TLA) ratio, Quick Ratio (QR), Current Ratio (CR), Operating Margin (OM), Gross Margin (GM), Net Earnings (NE), and Price-to-Earnings Ratio (PER).
The findings indicate that moderate debt levels improve ROE through tax benefits, whereas excessive leverage detrimentally affects company performance, especially in unstable and innovation-driven environments. Liquidity and operational efficiency metrics exhibit significant positive correlations with ROE, emphasising its function in mitigating financial risk. Profitability measures demonstrate a moderate but significant impact, aligning with reinvestment-oriented initiatives within this industry.
This study enhances the literature by incorporating firm's level performance measurements within the context of a South African developing market, providing practical insights for financial managers, investors, and policymakers. It underscores the significance of sustaining a balanced capital structure adapted to the dynamics of innovation-driven industries. Key recommendations include prioritising operational efficiency to reduce financial risk, strengthening liquidity management to bolster resilience, and facilitating access to adaptable financing methods that support innovation while maintaining long-term financial sustainability.