Examining the Mediating Effect of Leverage on the Relationship of Reinvestment and Firm Performance: Nexus in Asian Emerging Economies

Abstract

Building on our earlier research on the mediation effect of leverage between reinvestment and firm performance for developed economies (Mahmood & Malik, 2025), now this study examines and repeats the same methodology for Asian emerging economies. By expanding the approach, it is to be checked whether the reinvestment decision in emerging markets has the same impact on firm performance as like in developed or it is different in nature and magnitude? A sample of 145 firms from Asian emerging markets, including Pakistan, India, China, Thailand, and Indonesia, were studied using panel data methods between 2015 and 2023 (9 years). The study uses return on assets as a performance indicator/dependent variable, reinvestment as an independent variable, the debt ratio as a mediator, and control parameters including business size, inflation, and GDP growth rate and the HMRA technique is used for statistical analysis. The results demonstrate that reinvestment decision plays a vital role for firm performance indirectly through debt ratio, as and while debt ratio mediates the relationship which also shows that high reinvestment slightly changes debt level and lower debt level enhances firm performance. These findings contribute to emerging economies regarding reinvestment and setting of capital structure.

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