Effect of Capital Structure on Firms' Financial Performance: Empirical Evidence in Case of Construction and Materials (Cement) Sector of KSE-100 Index

Abstract

The study is done to explain the impact of capital structure on firms’ financial performance in Construction and Material (Cement) Sector of Karachi Stock Exchange. The data was collected from the annual reports of eight listed firms for the period of six years from 2009 to 2014. The balanced penal regression and correlation were used for analysis. The almost negative correlation studied between all variables of the study. The five models were regressed with five dependent and four independent variables. All models are significant but the results explained that the capital structure is not related with firms’ financial performance. Also financial performance of the sector is not influenced by the controlling variable (size of the firm) and it may conclude that the optimal capital structure may not have such importance in this sector. With the help of this study the finance mangers can make better decisions and researches can create new themes for the future researches.

Keywords: Capital Structure, Firms’ Financial Performance, Relevancy and Irrelevancy, Karachi Stock Exchange, KSE-100 Index.