The Impact of Capital Structure in Driving Firm’s Operating Performance

Abstract

This research evaluates the impact that capital structure has in driving firms operating performance, across 10 industries listed on the Pakistan Stock Exchange (PSX), from the time period of 2019 to 2023. The analysis is based on micro-level data which has been obtained from annual reports of the companies that have been selected and the PSX database. Panel data techniques are applied to address the dynamic nature of the dataset. The study employs statistical tools such as descriptive analysis, pair-wise correlation and the regression analysis to evaluate the relationships among the variables. Assumption testing ensures compliance with normality and multi-collinearity requirements, using Variance Inflation Factor (VIF) analysis to detect the potential issues. The results reveal that capital structure significantly influences firm performance. These findings offer valuable insights to managers, investors, and the policymakers, enabling informed strategic decisions on capital structure to improve profitability and sustainability.