Does Debt Financing Affect Firms' Profitability in Pakistan?
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This study aims at finding out determinants of capital structure and consequences of financing decisions. In an effort to figure out what factors determine financing decision and what outcomes their decision brings forth in the Pakistani firms listed at KSE, it tried a quantitative analysis on 276 firms selected for the period of 2003 to 2014 after excluding financial firms, default firms, newly registered firms and firms with negative equity. Its study results say that liquidity, tangibility, non-debt tax shield and growth are negatively associated with debt financing, except only the factor of firm size. And they also reveal that debt borrowings negatively affect profits overall in all the condition, but that the impacts of debt borrowing by larger, low riskier and high growth firms are less negative than those by small size, high risk, high tangibility, less non-debt tax shield and low growth firms. This study thereupon gives some useful information to firm managers in making financial decision.
Abstract
This study aims at finding out determinants of capital structure and consequences of financing decisions. In an effort to figure out what factors determine financing decision and what outcomes their decision brings forth in the Pakistani firms listed at KSE, it tried a quantitative analysis on 276 firms selected for the period of 2003 to 2014 after excluding financial firms, default firms, newly registered firms and firms with negative equity. Its study results say that liquidity, tangibility, non-debt tax shield and growth are negatively associated with debt financing, except only the factor of firm size. And they also reveal that debt borrowings negatively affect profits overall in all the condition, but that the impacts of debt borrowing by larger, low riskier and high growth firms are less negative than those by small size, high risk, high tangibility, less non-debt tax shield and low growth firms. This study thereupon gives some useful information to firm managers in making financial decision.
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