Impact Of Capital Structure On Performance Empirical Evidence From Sugar Sector Of Pakistan

Abstract

This paper examined the impact of firm’s capital structure components and leverage on firm’s performance. Data of 10 firms of food sector is taken. All the firms are listed on Karachi stock exchange. Data duration of this paper consists of five years from 2007-2011. Variables used in this paper are assets turnover ratio, return on assets, current liabilities to total assets, long tern debts to total assets and debt to equity ratio. Results are derived by applying multiple regression models. The results of this model show that there is a significant positive impact of long term debts on firm’s performance and significant negative impact of short term debts on firm’s performance. There is a negative relationship of firm’s leverage on firm’s performance. As firm’s leverage increases its performance decreases. There is a negative relationship between them.  Results show that firms using high amount of short term debts are facing negative trend in performance. So, results indicate that firms must try to use long term debts to meet their daily needs.

Keywords: Short term debts, long term debts, debt to equity and performance.