The Impact of Debt Financing on Firm Performance: Evidence from Pakistan Stock Exchange

Abstract

Debt financing is a state of loan company receive for almost everything including business venture. The lender gives some money to receiver after setting loan terms between them. At the time of maturity of loan if for some reason company is not able to pay back the loan, there is going to be collateral. The companies that prefer debt financing over equity financing wants to protect firms’ ownership and for having low interest rate which are tax free but debt financing has an effect on performance of company. The study is conducted to explore the effect of debt burden on performance of firm in mentioned sectors of Pakistan during recent five years period. The study is quantitative so data is collected from 4 different sectors in Pakistan stock exchange ranging from 2017-2021. For analyzing the data, the tools and techniques used are descriptive statistics, correlation matrixes, panel least square and Hausman test. The findings of research specify that performance of a firm is negatively associated with both short term and long-term loans. Although sales growth and firm size has positive association with performance of firm. The study recommend that firm should rely less on debt and more on financing their operations form internal sources of financing.