Impact of Debt and Equity on Firm Performance

Abstract

The effect of debt and equity on performance of Pakistani businesses in Fuel and Energy sector is investigated in this research. The research goes beyond what has already been done. Over a six-year period from 2014 to 2019, work on capital structure determinants of firms inside the country was conducted by using data from Pakistan stock exchange-listed non-financial companies. The link between debt and equity and firm performance is estimated using multiple regression models. ROA and ROE are used to evaluate performance. The long-term debt to asset ratio, the debt to asset ratio, and the equity over assets ratio are all factors that influence capital structure with the inclusion of a control variable which is the size of the business. As a collective regression model, the Fixed Effects Model and the Random Effect Model were employed to determine the link among firm performance (ROA, ROE) and independent factors such as (DTA, EOA, LTDA). The results reported that there is a connection, although the direction of the relationship is unclear. When ROA was utilized as the dependent variable, debt and equity had a favorable effect on performance of the business. The DTA and EOA ratios had a negative influence when ROE was used as the dependent variable, however the long term loans to assets ratio had a favorable influence.