The relationship of capital structure decisions with firm performance: A study of the engineering sector of Pakistan
By A. Khan. 2012
232 citations recorded by the source corpus.
Purpose: The purpose of this study is to find the relationship of capital structure decision with the performance of the firms in the developing market economies like Pakistan. Methodology: Pooled Ordinary Least Square regression was applied to 36 engineering sector firms in Pakistani market listed on the Karachi Stock Exchange (KSE) during the period 2003-2009. Findings: The results show that financial leverage measured by short term debt to total assets (STDTA) and total debt to total assets (TDTA) has a significantly negative relationship with the firm performance measured by Return on Assets (ROA), Gross Profit Margin (GM) and Tobin’s Q. The relationship between financial leverage and firm performance measured by the return on equity (ROE) is negative but insignificant. Asset size has an insignificant relationship with the firm performance measured by ROA and GM but negative and significant relationship exists with Tobin’s Q. Firms in the engineering sector of Pakistan are largely dependent on short term debt but debts are attached with strong covenants which affect the performance of the firm. Originality/Value: This is first paper to study an individual sector like engineering industry in Pakistan on the mentioned topic.
Subfields: Accounting, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/852233ca046fecaa4f73560a1a866d885a653206
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Citations in the corpus
- The Impact of Capital Structure on Firm Performance: Evidence from Vietnam (2020, background): “In contrast, other studies exist, showing a positive correlation (Arbabiyan and Safari, 2009), no correlation (Chang, Wang, Lee, & La, 2014; Prahalathan & Ranjani, 2011) or a weak correlation (Khan, 2012) between these factors.”
- The Moderating Effect of Firm Size on the Relationship Between Capital Structure and Financial Distress of Non-Financial Companies Listed in Kenya (2017, unknown): “This position was also supported by Khan (2012) and Maina and Ishmail (2014) whose studies found a negative relationship between firm size and firm value as measured through their Tobin’s Q.”
- Effects of Capital Structure on Firm’s Performance: Empirical Study of Manufacturing Companies in Nigeria (2014, methodology): “the disturbance εεiiii such that the disturbance term εεiiii is assumed to be uncorrelated with columns of the parameters XXiiii and ZZiiii as stated in equation (1), and has zero mean and constant variance σσ2ηη(Hausman and Taylor, 1981; Nakamura and Nakamura, 1981).”