Capital Structure and Firm Performance: An Empirical analysis of ROA and ROE

Abstract

The goal of the current study is to clarify the significance of capitalization and its effects on registered businesses in Pakistan's chemical industry (Pakistan stock market) between 2008 and 2018. The study uses a sample of 17 businesses identify the drivers of capital structure using regression, correlation, and a panel data model. Initially, OLS (ordinary least square) regression, matrix correlation, summary statistics, fixed effect, and random effect were used in analyses on panel data from 2008 to 2018. Considerations include depreciation, taxes, returns on equity, and earnings per share. Sales, total assets, total equity, and earnings per share are all positively correlated with profitability. Profitability and depreciation are inversely connected. The trade-off theory's theoretical predictions are supported by the capital structure's substantial positive association with profitability. Only registered manufacturing companies in Pakistan's cement sector are included in the current work. Additionally, this study does not take into account other industry sectors.

Keywords: Capital structure, ROA, ROE, OLS