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Capital structure, competitive intensity and firm performance: evidence from Pakistan

Author

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  • Naveed Ahmed
  • Talat Afza

Abstract

Purpose - The purpose of this paper is to explore the moderating role of competitive intensity between the existing relationship of capital structure and firm performance. Design/methodology/approach - Using the balanced panel data of listed non-financial firms of Pakistan, the present study adopts both the panel and OLS estimation techniques to draw the inferences. Findings - The results exhibit that high debt ratio is harmful for the accounting performance of the selected sample firms of Pakistan. In addition, product market competition negatively moderates the relationship between capital structure and firm performance which suggests that high product market competition can be used as a substitute of debt financing to align the interests of a firm’s managers and shareholders. Practical implications - The findings of the research provide evidence for the policy makers/regulators that the sample firms should discourage the high debt financing in the presence of competitive intensity in the product marketplace. Originality/value - The core contribution of the current research is to examine the moderating role of product market competition on the leverage–performance relationship because, to the best of the authors’ knowledge, no single study has previously explored this relationship in the context of Pakistan.

Suggested Citation

  • Naveed Ahmed & Talat Afza, 2019. "Capital structure, competitive intensity and firm performance: evidence from Pakistan," Journal of Advances in Management Research, Emerald Group Publishing Limited, vol. 16(5), pages 796-813, June.
    • Handle: RePEc:eme:jamrpp:jamr-02-2019-0018
    DOI: 10.1108/JAMR-02-2019-0018
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    Citations

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    Cited by:

    1. Sadiq, Misbah & Yousaf, Sheikh Usman & Anser, Muhammad Khalid & Rashid Khan, Haroon ur & Sriyanto, Sriyanto & Zaman, Khalid & Van Tu, Duong & Anis, Siti Nisrin Mohd, 2023. "The role of debt financing in the relationship between capital structure, firm’s value, and macroeconomic factors: To throw caution to the wind," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 212-223.
    2. Wang PeiZhi & Muhammad Ramzan, 2020. "Do corporate governance structure and capital structure matter for the performance of the firms? An empirical testing with the contemplation of outliers," PLOS ONE, Public Library of Science, vol. 15(2), pages 1-25, February.
    3. Muhammad Akhtar & Kong Yusheng & Muhammad Haris & Qurat Ul Ain & Hafiz Mustansar Javaid, 2022. "Impact of financial leverage on sustainable growth, market performance, and profitability," Economic Change and Restructuring, Springer, vol. 55(2), pages 737-774, May.
    4. Tung Duy Bui & Huan Huu Nguyen & Vu Minh Ngo, 2021. "Financial leverage and performance of SMEs in Vietnam: Evidence from the post-crisis period," Economics and Business Letters, Oviedo University Press, vol. 10(3), pages 229-239.
    5. Waseem, Fareeha, 2023. "Impact of Managerial Entrenchment on Firm Performance," OSF Preprints hmuab, Center for Open Science.
    6. Alexandra Horobet & Stefania Cristina Curea & Alexandra Smedoiu Popoviciu & Cosmin-Alin Botoroga & Lucian Belascu & Dan Gabriel Dumitrescu, 2021. "Solvency Risk and Corporate Performance: A Case Study on European Retailers," JRFM, MDPI, vol. 14(11), pages 1-34, November.

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