Impact of Capital Structure on Firms Performance

The study is to identify and explore the firm-specific factors of capital structure which impacts on
performance in Pakistan. According to (Basit & Hassan, 2017) capital structure is an important
component of corporations as they have certain impact on value of the firm. Incompetency of financial
decision may lead to financial distress and bankruptcy.

This research will be carried out on major contributing sectors to GDP registered in Karachi stock
exchange (KSE). Pharmaceutical, Cement, Textile, sugar mills, Automobile Industry and Tobbaco are
considered to be most prominent contributors to the Pakistan economy.

Purpose

Firms maintain a mix of debt and equity, but the problem is that which proportionate of debt and equity
has greater benefits against lessor costs. (bokhari & khan, 2013). This is a problem to answer because
different sources of finances have different cost structures and benefits allowing the firms to make it as
a competitive advantage. One solution can be that to choose the mix which maximizes the shareholder’s
wealth but different firms have different impacts of the sources of finance.

The purpose of this study is to check the impact of capital structure on firm performance of the major
industries contributing in growth of large scale manufacturing output in Pakistan. According to (Ministry
Of Finance, 2017), The large-scale manufacturing output is primarily based on Quantum Index
Manufacturing (QIM) data, which show an increase by 5.06 percent from July 2016 to March 2017.
Major contributors to this growth are sugar (29.33 percent), cement (7.19 percent).

The purpose of this study is to check the effect of capital structure on firm performance of the major
industries contributing in growth of large scale manufacturing output in Pakistan. According to
(Associated Press of Pakistan corporation, 2016) Pharmaceutical, Cement, and automobiles
remained major sector in large scale manufacturing growth. The sectors recorded positive growth over
corresponding Tobacco sales contribution to Pakistan’s GDP is about 4.5 percent,
Pharmaceuticals 7.21 percent, Automobiles 23.43 percent.

The study that we have conducted provides overall effect of different variables of capital structure on
industrial progress from 2001-2009.

The results show the rate of growth of this sector is in positive direction but very slow that have
negligible effect on the development of overall economy.

The industry specific data shows that, Automobiles 11.31 percent, Tobacco 9.65 percent,
Pharmaceuticals 8.74 percent, Textile 0.78 percent
The large-scale manufacturing output is primarily based on Quantum Index Manufacturing (QIM) data,
which show an increase by 5.06 percent from July 2016 to March 2017. Major contributors to this
growth are sugar (29.33 percent), cement (7.19 percent)

The industry specific data shows that most of the sub sectors recorded positive
growth during the period July-March FY 2016 over corresponding period of last
year i.e. Automobiles 23.43 percent, Fertilizers 15.92 percent, Leather Products
12.18 percent, Rubber products 11.68 percent, Non Metallic mineral products
10.23 percent, Chemicals 10.01 percent, Pharmaceuticals 7.21 percent, Food
Beverage and Tobacco 3.66 percent, Coke & Petroleum Products 2.40 percent
and Textile 0.62 percent.

https://www.thebalance.com/an-introduction-to-capital-structure-357496

The researches carried out in Pakistan enlighten some sector.

(Nazir, 2017) Textile, Automobiles, Sugar, Petroleum & Engineering Industry.

(Muhammad, Shah, & Islam, 2014); cement

(Mujahid & Akhtar, 2014); Textile

Amara and Aziz, 2014; (Food sector)

Hasan and Din, 2012; (Textile)

Research Objectives

• To identify and examine the impact of capital structure on ROE

• To identify and examine the impact of capital structure on ROA

•To identify and examine the impact of capital structure on EPS

• To identify and examine the impact of capital structure on firm Size

Hasan, Y. Din, K. (2012). The Comprehensive Study of the Capital Structure of Textile Composite in
Pakistan over the Decade. Interdisciplinary Journal of Contemporary Research in Business, 3(9), pp. 311-
324. Retrieved http://www.journal-archieves14. webs.com/311-324.pdf