**6. Conclusions**

This paper has examined firm level characteristics and firm performance (or profitability) of service sector firms listed in the Australian Stock Exchange (ASX). Using a panel regression approach on data collected over an eleven-year period (2009–2019), the effect of capital structure and leverage was examined. Four measures of firm performance were used: return on assets, return on equity, operating margin ratio and return on capital employed. The analysis of data reveals a significant association between return on equity and leverage levels. Leverage affects firm performance at a statistically significant level in these service sector firms. For every dollar of increase in leverage, operating margin improves by 0.24 times, return on assets reduces by 1.11 times and return on invested capital reduces by 7.59 times (all statistically significant at the 1% and 5% level), suggesting that Australian services sector firms are not benefitting much from the use of debts to finance their operations. This finding is in sharp contrast to asymmetric information theory that suggests that lower debt levels hide firm performance (Myers 1984). In fact, they are overburdened with debts. When long-term debt is used to finance total assets, the picture changes dramatically. Return on assets, return on invested capital and return on equity changes by 0.24 times (significant at 5% level), return on capital employed increases by 1.68 times (significant at 10% level) and return on equity improves by 1.27 times (significant at the 5% level), suggesting the positive value adding contributions of the use of long-term debt. The directional causality tests, as captured in the Granger causality test, indicated a positive unidirectional association between leverage and operating margin, bi-directional causality with return on assets (negative) and return on invested capital, with return on assets (negative) and a unidirectional (positive) causality between leverage and return on equity. The test also identified a bidirectional causality between long-term debt to total assets and operating margin, and a bidirectional relationship with return on assets, return on invested capital and return on equity. The presence of unidirectional and bidirectional causality between di fferent types of debts to finance operations mean significant interdependencies and negative e ffects of debt on service sector firms in Australia.

The study has the inherent limitations of any research project. The sample size may be questioned for two reasons: the number of firms from the Australian service sector and the years included in the data. Due to unavailability of data, only three years of data are used. Inclusion of more years can be a possibility for the extension of the current research project. Interested researchers may consider a robust dataset, encompassing industries from all sectors of the Australian economy. The current study has examined a limited number of constructs to reflect on the profitability of Australian service sector listed firms. The influence of extra-organizational factors may contribute to the profitability of Australian service sector companies. Researchers willing to pursue the line of inquiry in this paper may include economic factors such as inflation, interest rate and GDP in future research. Finally, service sector heterogeneity may be partially responsible for poor reflection of profitability. So the inclusion of industry e ffects may be worthwhile before a conclusion can be reached about the industry sector e ffect on Australian service sector performance.

**Author Contributions:** R.A. developed the research idea and conducted review of literature. R.A. collected the data under the guidance and recommendation of R.B. and run the statistical analysis which is also suggested by R.B. R.B. provided the insights of the statistical results and analysis. Both authors have read and agreed to the published version of the manuscript.

**Funding:** This research received no external funding.

**Conflicts of Interest:** The authors declare no conflict of interest.
