Impact of Debt Financing on Corporate Financial Performance Comparative Study between Manufacturing and Service Firms Listed At Karachi Stock Exchange Pakistan

Abstract

Basic objective of this study was to examine the relationship between debt financing and firm financial performance of different manufacturing and service companies listed at Karachi Stock Exchange. For the achievement of this objective a sample of twenty companies during the years 2005 to 2014 was studied. In this study financial leverage, firm size, and sales growth were taken as independent while Tobin’s Q as dependent variable. The sample size for twenty firms for ten years consists of 200 observations. Descriptive statistics, correlation, and regression analysis models used to analyze the date that were put in. The statistical tool that was used for analysis is SPSS 16.0 Version. A linear regression model is applied on the data to establish a causal relationship between the variables. The study provided highly significant as well as insignificant relations in particular. This research was actually meant to compare both manufacturing and service firms by selecting only 20 out of total population of firms in KSE. For manufacturing firms all the relations were positively significant except sales growth showed negatively significant relationship with profitability (Tobin’s Q). But as far as service oriented companies are concerned only two variables financial leverage and firm size showed negatively significant results while sales growth showed positively insignificant result. There were temporal limitations of the study, time period for this study was four months and this was not enough time to cover and collect data from KSE.

Keywords: Financial leverage, firm size, sales growth, Tobin’s Q