Vol 1 Issue 1 September 2014-December 2014
Yousaf Abbasi, Hifsa Sabeen, Shahbaz Khan, Talha Jalees
Abstract: This study seeks to investigate the issues related to financing decision and the profitability of the listed firms at the Karachi Stock Exchange (KSE). By performing this investigation we try to find out that is Pakistani listed firms at KSE follow any capital structure theory during the period 2000-2010.
The study is based on the panel data of 40 non financial listed companies at Karachi Stock Exchange for the period of 2000-2010. Comprehensive descriptive analysis was conducted to find out mean, median and standard deviation for better understanding of readers. OLS Regression analysis is used to analyze the relationship between profitability and financing by debts. The relationship is found for short term debts, long term debts and total debts. Size and growth are used as control variables in the study.
The results regarding leverage and profitability reveal that there is an inverse relationship between the use of debt in capital structure and profitability. The over usage of debt in the capital structure is responsible for these results. Size and sales growth has positive relationship with the profitability.
This study investigates the issues relating to the capital structure and firms performance in terms of profitability. All firms need operating capital to support their sales. To acquire operating capital, funds must be raised in the form of a combination of equity and debt. For any business organization the financing decision is very critical because of the need to maximize the profit to the financing constituencies, and also for the survival of firm in its competitive environment with that optimal capital structure. The choice among the best proportion of debt and equity can affect the value of the firm, as well as the rate of return.
The most of the factors that are used in this research study is based on previous researches to analyze the relationship among debt financing and profitability of the firms. Basically, we selected the attributes identified by Abor (2005) and planned to test few other variables that are used in various studies. But, there is lack of financial data in the selected sample space and therefore, we include just two additional variable is this research study.
This research identified need, to examine use of different capital structures used by the listed companies and its impact on profitability capabilities of these companies. This study is based on the data collected from the sample of 40 listed companies of Karachi stock Exchange (KSE). Keywords: Capital Structure, Profitability, Debt, Equity, Return on Assets, Leverage, Growth, Size
Title: Debt and Profitability: An Empirical Analysis of Listed Firms in Pakistan
Author: Yousaf Abbasi, Hifsa Sabeen,Shahbaz Khan,Talha Jalees
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