The Impact of Capital Structure on Firm Value: Evidence Form PSX

Abstract

Sixty years ago form today an issue raised, it has been academic issue, which is, the association of firm’s value with capital structure of the firm. Even, till now, there is no theoretical framework on capital structure that provides a satisfactory answer to the relationship. The research shows the effect of the capital structure, return on debt and return on equity on the value of the firms of the Pakistan. Another new variable is added in this research to get more feasible relationship is return on debt. The financial data is collected form the Pakistan stock exchange with index 100. The sample size of the data is 50 and the time period is five years 2017 to 2021. Capital structure is a main component in the current study of the research, which directly or indirectly effing the value of the firm. To establish the relationship researcher used Pooled- Ordinary least- squares models, fixed- effect model, and random- effect model are used. The result proclaims that the existence of Modigliani and Miller (1 9 5 8) irrelevance theory specify no effect of leverage on the value of the firm. The generated results from study provide important suggestions to the potential investor to make well- judged investment in these type of firm.