FINANCIAL LEVERAGE, WORKING CAPITAL MANAGEMENT AND FIRM PROFITABILITY? EMPIRICAL EVIDENCE FROM PAKISTAN STOCK EXCHANGE

Abstract

Purpose: This study intended to examine the impact of working capital with the moderation ofleverage in the pharmaceutical sector ofKarachi, Pakistan. Methodology & Design: The target population in present study includes the pharmaceutical industry of Pakistan. Moreover, the panel data of present has been extracted from the period of 2009 to 2018 comprising of 10 years. For the purpose ofsecondary data analysis, the study has employed descriptive statistics, covariance analysis, panel cointegration analysis, Hausman misspecification ofrandom-effect estimation, and pooled OLS using random-effect technique using EViews 9 software. Findings: As far as the moderating effects of debt to asset ratio are concerned, this debt ratio (DR) has positive and significant impact only on the Receivable collection period. All other associations with the moderating effect of debt ratio, remain insignificant in this study. Limitations: The first and most important limitations that should be focused in futures studies is that, this research has focused only on the Karachi market. Secondly, this study has been conducted only in the pharmaceutical sector which also restrain its generalizability. Implications: The results also bring another important implication for the organizational managers that they should work on their debt ratio. Debts are the most important element for any organization in order to have smooth running of their operations. Having excessive amount of debt for the operational work is risky. Thus the firms need to manage their debt policies accordingly and should not go for having bigger debts and for a longer time period.