Capital Structure as Driving Force of Financial Performance: Case of Energy and Fuel Sector of Pakistan

Abstract

Choosing the appropriate mix of various short and long term sources of funds, stands among the acute decisions to be taken by management of the firms, to form elementary suitability for investment and other decisions. Literature lacking consensus pertinent to impact of capital structure on financial performance of the firms. This study intends to investigate the impact of capital structure on financial performance of fuel and energy sector of Pakistan taking into account secondary data from 2006-14. Empirical results of renowned econometric model multiple regression revealed that there is a significant negative impact of capital structure on ROA and ROE of firms in fuel & energy sector of Pakistan, while EPS is least driven by capital structure parameters, only the size has significant positive bearing on EPS. The research findings suggest provide policy makers and administrators to rely on equity financing rather debt ethos in order to mitigate the default risk exposure.