Analyzing the influence of financial leverage on social performance of selected non-financial companies in Bahrain

Atul Bansal ()
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Atul Bansal: University of Bahrain

International Journal of System Assurance Engineering and Management, 2025, vol. 16, issue 1, No 20, 392-401

Abstract: Abstract Since the eighteenth century, corporate social responsibility has evolved into a fundamental expectation for businesses. Nonetheless, the connection between CSR and financial leverage remains ambiguous. This study seeks to examine the effect of financial leverage on corporate social responsibility. The study’s primary objective is to determine how the social performance of these enterprises correlates with their financial leverage. Twelve non-financial companies listed on the Bahrain Bourse were the subject of this study’s cross-sectional data analysis. The study analyzed the effect of financial leverage on the social performance of selected companies using annual reports from 2021. Return on assets and return on equity are the dependent variables used to estimate a company’s social performance. In this study, the following measures were used to evaluate financial leverage: (i) debt ratio, (ii) debt-to-equity ratio, and (iii) interest coverage ratio. With the use of AMOS as well as SPSS for data analysis, the current study tested its hypotheses and variables. According to the research, there is a strong connection between financial leverage and the social performance of enterprises as indicated by the regression results. The debt ratio has a significant positive relationship with return on assets (ROA), with a coefficient of 0.042 (p-value 0.050), and the interest coverage ratio (ICR) also shows significance with ROA (coefficient 0.008, p-value 0.038). Additionally, the debt-to-equity ratio (D/E) shows a strong positive correlation with return on equity (ROE), shown by a coefficient of 0.174 (p-value 0.002). The adjusted R² values of 0.346 for ROA and 0.472 for ROE indicate that financial leverage attributes significantly explain the variance in social performance metrics. The overall results demonstrate that Bahrain’s non-financial businesses are performing well in terms of profitability. This study discovered that the social performance of enterprises is significantly influenced by financial leverage attributes.

Keywords: Financial leverage; Corporate social performance; Non-financial companies; Bahrain bourse; Return on asset; Debt ratio; Return on equity (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s13198-024-02627-x

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