What Is Debt Leverage?

Debt leverage, also known as leverage, refers to the use of debt financing by the company to use its capital structure to improve the return on investment of shareholders of the company. It is usually measured by the ratio of total debt to total assets. This ratio is called the debt ratio. Generally speaking, creditors prefer a lower debt ratio, because the lower the debt ratio, the greater the degree of protection of creditors in the company's liquidation; but as far as the owner is concerned, he prefers high leverage rather than issuing new shares because the former It would increase the surplus, which would reduce some control. ^[1]

Debt leverage

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Debt leverage, also known as leverage, refers to the use of debt financing by the company to use its capital structure to improve the return on investment of shareholders of the company. It is usually measured by the ratio of total debt to total assets. This ratio is called the debt ratio. Generally speaking, creditors prefer a lower debt ratio, because the lower the debt ratio, the greater the degree of protection of creditors in the company's liquidation; but as far as the owner is concerned, he prefers high leverage rather than issuing new shares because the former It would increase the surplus, which would reduce some control. ^[1]

Debt leverage, also known as leverage, refers to

Debt leverage generally shows an inhibitory effect on over-investment, and this utility shows a tendency of weakening and then increasing with the increase of equity concentration. Under the state of ownership concentration, there is no evidence that debt leverage will affect the state-owned listed companies. Insufficient investment generates incentives; for non-state-owned property-listed companies, debt leverage shows both an inhibitory effect on overinvestment and an incentive effect on underinvestment, and the incentive for underinvestment will gradually weaken as equity concentration increases. Evidence shows that the threat of debt bankruptcy will also ease the company's underinvestment problem. Compared with state-owned property listed companies, debt leverage in non-state-owned listed companies has a more significant restraint on excessive investment.