Does Floating of the Exchange Rate Affect the Relationship between Financial Leverage and the Return on the Assets and Shares of Non-Financial Companies Listed on the Egyptian Stock Exchange?

The research aimed to study and test the effect of floating the exchange rate policy on the relationship between financial leverage (Lev) as an independent variable (measured by the ratio of total liabilities ÷ total assets) and return on assets (ROA) and earnings per share (EPS) as dependent variables for non-financial companies registered on the Egyptian Stock Exchange. This is through a theoretical, analytical and applied study on a sample of 100 companies during the period from 2016 to 2023 (741 observations). The theoretical study concluded that the relationship between financial leverage and the return on corporate assets and shares takes the form of an inverted U, where the relationship is positive if the profitability rates exceed the cost of the borrowed funds, then after exceeding the optimal size of borrowing, the relationship reverses and becomes negative because of the cost of borrowing exceeding the profitability rates of Company.
The results of the applied study confirmed the significant and negative relationship between financial leverage and the rate of return on assets (ROA) for non-financial companies listed on the Egyptian Stock Exchange, because of most of the sample companies being burdened with debts that exceed the optimal size of their liabilities, and despite the continued negative relationship between financial leverage and the rate of return on assets. Return on assets while taking the effect of the modifying variable (floating of the exchange rate) into account, but this relationship became insignificant because of the decline in the value of liabilities in relation to the profitability of non-financial companies registered on the Egyptian Stock Exchange. The results also found that the relationship between financial leverage and the earnings per share of non-financial companies registered on the Egyptian Stock Exchange was negative, but not significant.
Finally, the impact of the control variables (company size, company age, audit quality) varied in terms of the form of the relationship (positive/negative) or its strength (significant/insignificant) on the two dependent variables.
The researcher recommended the importance of conducting more research on the importance of identifying the factors that affect the relationship between financial leverage and the financial performance of Egyptian companies, to reach the best optimal of the capital structure of Egyptian companies, in order to improve their financial performance and thus their market value.