Capital Structure and Financial Performance: Evidence from Pakistan

Syed Babar Ali and Mr. Muhammad Mehdi Umyani

MPRA Paper from University Library of Munich, Germany

Abstract: The research is done with the purpose of increasing knowledge about the importance of working capital management. The research investigates the impact of working capital management on the profitability of the firms along with the impact of the same on the fixed capital investment of the firm. The research also finds out the interrelationship of fixed capital investment and profitability because the ultimate goal of the firms is to achieve maximum profitability at the lowest level of risk. The research has thoroughly examined the impact of variables involved through ratio analysis and tools like regression and correlation. The data was gathered from Karachi Stock Exchange. The data gathering was archival and panel data was used as a method to extract the needed information. The 20 companies are selected from KSE-30 index because they were considered the best-performing stocks in the market. The remaining 10 companies fall in the Banking sector which has a totally different perspective of debt and equity situation, thus, commercial banks are eliminated from the KSE-30 companies in this research. The results of the study show that working capital management does not affect the profitability of the firms in isolation, but there is a slight impact of managing the current assets and current liabilities. These should be accompanied by other variables as well to ensure profitability. The fixed capital investment has an extremely low, in fact, negligible impact on profitability. The effect of working capital management varies among industries.

Keywords: Capital structure; financial performance (search for similar items in EconPapers)
JEL-codes: G0 G32 (search for similar items in EconPapers)
Date: 2013-06-03, Revised 2022-11-12
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https://mpra.ub.uni-muenchen.de/116502/1/MPRA_paper_116404.pdf revised version (application/pdf)

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