The Impact of Capital Structure on the Firms’ Performance: a Case of Cement Industry of Pakistan

Abstract

The aim ofthe study is to examine the impact of the capital structure on the firms5 performance in the cement sector while also gaining understanding ofhow both debt and equity financing affect the firm performance. The data utilized for the study taken for a period of five years from 2018-2022 from the financial statements ofthe 16 cement firms listed on Pakistan Stock Exchange. The data type was panel data as it consisted ofmultiple time series and cross-sections. EViews 12, a statistical program for data analysis, was used to enter the acquired data and determine the effects of independent variables on dependent variables. ROA and ROE were used as dependent variables and total debt and total equity were taken as independent variables. The Pooled, fixed, and random effect models were used to analyze the data and p-values were used to test the hypotheses. The results indicated a significant impact ofboth total debt and equity on ROA of cement industry but an insignificant impact on ROE. Additionally, it was discovered that total equity had a positive relationship with financial performance whereas total debt had a negative relationship. In conclusion, these findings will help managers understand the implications ofthe respective method offinancing and choose a suitable capital structure in orderto achieve the best financial performance and will also contribute to the current body of literature that may be utilized to research new areas for research.