Abstract
The aim
of this study was to analyze the effects of profitability and debt-to-equity
ratio on operating leverage in the case of companies listed on the Korea
Exchange from 2000 to 2021. The analysis showed that the profitability and
debt-to-equity ratio of companies in Korea rose with increasing operating
leverage (fixed costs), and it is worth noting that a company’s cost structure
affects its capital structure. There was a positive correlation between
profitability and debt-to-equity ratio for Korean firms, which means that their
capital structure can be explained by the pecking order theory. That is, the
more profitable a company is, the more it prefers to raise funds through debt
issuance rather than equity issuance. In the case of Korean companies with a
relatively high dependence on debt, the increase in operating leverage for
facility investment among other business activities mostly expands debt, and
the higher the profitability, the higher the debt-to-equity ratio is.
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