IDEAS home Printed from https://ideas.repec.org/a/aaw/journl/v5y2020i2p1-16.html

Role of Capital structure in financial performance of non-financial sector firms: Evidence from Pakistan Stock Exchange

Author

Listed:
  • Hafiz Abdur Rashid

    (PhD Scholar, Superior College, Lahore, Punjab, Pakistan.)

  • Ahmed Raza Bilal

    (Associate Professor, Department of Business & Management Sciences, Superior College, Lahore, Punjab, Pakistan.)

Abstract

This paper looks at financial performance of non-financial sectors of Pakistan concerning capital structure. We gathered data from annual audited financial statements of 152 firms listed at PSX during 2010-2017. To analyze data gathered, we have employed descriptive, correlation and regression analyses techniques. The findings show substantial positive contribution of LTDA in EPS and ROA and significant negative role in NPM and ROE which implies prefer long term debt over short term debt because of less financing cost. STDTA has substantial negative contribution in firms financial performance among all sectors except sugar and communication & technology sectors. TDTA also has negative impact on financial performance of firms among all sectors except automobile sector, which implies that equity financing is preferable over debt financing. These findings validate pecking order theory and recommend preferring internal financing (retained earnings) over external financing.

Suggested Citation

  • Hafiz Abdur Rashid & Ahmed Raza Bilal, 2020. "Role of Capital structure in financial performance of non-financial sector firms: Evidence from Pakistan Stock Exchange," Global Economics Review, Humanity Only, vol. 5(2), pages 1-16, June.
    • Handle: RePEc:aaw:journl:v:5:y:2020:i:2:p:1-16
    as

    Download full text from publisher

    File URL: https://gerjournal.com/jadmin/Auther/31rvIolA2LALJouq9hkR/6WKmsBVSRE.pdf
    Download Restriction: no
    File URL: https://www.gerjournal.com/issue/role-of-capital-structure-in-financial-performance-of-nonfinancial-sector-firms-evidence-from-pakistan-stock-exchange
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Berger, Allen N. & Bonaccorsi di Patti, Emilia, 2006. "Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry," Journal of Banking & Finance, Elsevier, vol. 30(4), pages 1065-1102, April.
    2. Mohammad Rajon Meah & Nasir Uddin Chaudhory & Md Ibrahim Khalil, 2020. "Does Capital Structure Affect the Profitability of Listed Family and Non-Family Firms? Evidence from Bangladesh," International Journal of Business, Economics and Management, Conscientia Beam, vol. 7(3), pages 131-145.
    3. Vladislav Spitsin & Darko Vukovic & Sergey Anokhin & Lubov Spitsina, 2020. "Company performance and optimal capital structure: evidence of transition economy (Russia)," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(2), pages 313-332, May.
    4. Margaritis, Dimitris & Psillaki, Maria, 2010. "Capital structure, equity ownership and firm performance," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 621-632, March.
    5. Elena Alexandra Nenu & Georgeta Vintilă & Ştefan Cristian Gherghina, 2018. "The Impact of Capital Structure on Risk and Firm Performance: Empirical Evidence for the Bucharest Stock Exchange Listed Companies," IJFS, MDPI, vol. 6(2), pages 1-29, April.
    6. Krishna Dayal Pandey & Tarak Nath Sahu, 2017. "An Empirical Analysis on Capital Structure, Ownership Structure and Firm Performance: Evidence from India," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 8(2), pages 63-72, May.
    7. Mohammad Rajon Meah & Nasir Uddin Chaudhory & Md. Ibrahim Khalil, 2020. "Does Capital Structure Affect the Profitability of Listed Family and Non-Family Firms? Evidence from Bangladesh," International Journal of Business, Economics and Management, Conscientia Beam, vol. 7(3), pages 131-145.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hossain, Mohammed Sawkat, 2021. "A revisit of capital structure puzzle: Global evidence and analysis," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 657-678.
    2. Xiaojian Hu & Gang Yao & Taiyun Zhou, 2022. "Does ownership structure affect the optimal capital structure? A PSTR model for China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2458-2480, April.
    3. V.V. Spitsin & A. Mikhalchuk & Darko B. Vukovic & L.Y. Spitsina, 2023. "Technical Efficiency of High-Technology Industries in the Crisis: Evidence from Russia," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(1), pages 200-225, March.
    4. Khémiri, Wafa & Noubbigh, Hédi, 2020. "Size-threshold effect in debt-firm performance nexus in the sub-Saharan region: A Panel Smooth Transition Regression approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 335-344.
    5. Eman Fathi Attia & Hamsa hany Ezz Eldeen & Sameh said Daher, 2023. "Size-Threshold Effect in the Capital Structure–Firm Performance Nexus in the MENA Region: A Dynamic Panel Threshold Regression Model," Risks, MDPI, vol. 11(2), pages 1-13, January.
    6. repec:jaf:journl:v:10:y:2019:i:1:n:138 is not listed on IDEAS
    7. Albert Agyei & Appiah Richard Owusu, 2014. "The Effect of Ownership Structure and Corporate Governance on Capital Structure of Ghanaian Listed Manufacturing Companies," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(1), pages 109-118, January.
    8. Kebewar, Mazen, 2013. "Does debt affect profitability? An empirical study of French trade sector," EconStor Preprints 73185, ZBW - Leibniz Information Centre for Economics.
    9. Sabri Boubaker & Riadh Manita & Salma Mefteh-Wali, 2022. "Foreign currency hedging and firm productive efficiency," Annals of Operations Research, Springer, vol. 313(2), pages 833-854, June.
    10. Thi Xuan Nguyen & Manh Dung Tran & Duc Tai Do, 2025. "The Relationship Between Capital Structure and Performance: The Case of Vietnam," SAGE Open, , vol. 15(2), pages 21582440251, June.
    11. Md. Imran Hossain, 2016. "Effects of Capital Structure and Managerial Ownership on Profitability: Experience from Bangladesh," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(9), pages 218-218, August.
    12. Nguyen Hoang Phi Nam & Tran Thi My Tuyen, 2024. "Impact of liquidity on capital structure and financial performance of non-financial-listed companies in the vietnam stock market," Future Business Journal, Springer, vol. 10(1), pages 1-19, December.
    13. Yousry Ahmed & Tamer Elshandidy, 2021. "Effect of leverage deviation on choices and outcomes of public versus non‐public acquisitions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3436-3459, July.
    14. Kebewar, Mazen & Shah, Syed Muhammad Noaman Ahmed, 2013. "The effect of debt on corporate profitability: Evidence from French service sector," EconStor Preprints 73556, ZBW - Leibniz Information Centre for Economics.
    15. Ewa Majerowska & Magdalena Gostkowska-Drzewicka, 2017. "Determinants of Corporate Performance: Modelling Approach," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 17, pages 115-127.
    16. Zhang, Dongyang & Liu, Deqiang, 2017. "Determinants of the capital structure of Chinese non-listed enterprises: Is TFP efficient?," Economic Systems, Elsevier, vol. 41(2), pages 179-202.
    17. Yomna Daoud & Aida Kammoun, 2025. "The Effect of Capital Regulation Measures and Non-Performing Financing on Islamic Banks' Performance: Evidence from the Post-Crisis Era," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 206-226.
    18. Cappa, Francesco & Cetrini, Giorgio & Oriani, Raffaele, 2020. "The impact of corporate strategy on capital structure: evidence from Italian listed firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 379-385.
    19. Mazen Kebewar, 2012. "L'Impact De L'Endettement Sur La Profitabilité Une Étude Empirique Sur Données Françaises En Panel," Working Papers halshs-00749685, HAL.
    20. Diby François Kassi & Dilesha Nawadali Rathnayake & Pierre Axel Louembe & Ning Ding, 2019. "Market Risk and Financial Performance of Non-Financial Companies Listed on the Moroccan Stock Exchange," Risks, MDPI, vol. 7(1), pages 1-29, February.
    21. Almanaseer Sufian, 2024. "The Impact of Equity Financing on Financial Performance: Evidence from Jordan," Foundations of Management, Sciendo, vol. 16(1), pages 157-176.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aaw:journl:v:5:y:2020:i:2:p:1-16. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: M Imran Khan The email address of this maintainer does not seem to be valid anymore. Please ask M Imran Khan to update the entry or send us the correct address (email available below). General contact details of provider: http://www.humanityonly.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.