The Impact of Capital Structure on Firm Performance (Perception): A Survey-Based Study of the Cement Industry in Pakistan

Abstract

This study investigates the impact of capital structure on Firm Performance (Perception) within the cement industry of Pakistan—a sector known for its capital-intensive nature and strategic role in infrastructure development. The research aims to assess how key financial leverage indicators influence profitability and operational outcomes in this context. Five core independent variables were examined: Debt Ratio (DR), Debt-to-Equity Ratio (DER), Short-Term Debt Proportion (STDP), Long-Term Debt Proportion (LTDP), and Interest Coverage Ratio (ICR), with Firm Performance (Perception) (FP) serving as the dependent variable.Using a quantitative approach, data was collected through structured questionnaires distributed to 152 finance professionals across five leading cement companies in Pakistan. The analysis employed reliability testing, descriptive statistics, correlation analysis, and multiple regression to examine relationships among variables. The model showed strong explanatory power with an R² of 0.484, indicating that nearly 48.4% of the variance in Firm Performance (Perception) is explained by the selected capital structure components.The findings revealed that all five variables significantly influenced Firm Performance (Perception). Specifically, DR, DER, LTDP, and ICR had positive and statistically significant effects, while STDP, contrary to expectations, also showed a positive effect, indicating its strategic use in managing liquidity. The Interest Coverage Ratio emerged as the most influential predictor. These results suggest that financial managers must balance debt components carefully to enhance profitability and mitigate financial risk.This research contributes to both academic literature and practical financial management by providing empirical evidence on capital structure decisions in an emerging economy. It highlights the importance of leveraging long-term financing and managing interest obligations efficiently. Future studies are encouraged to explore other moderating factors such as firm size, governance, and macroeconomic conditions to deepen understanding.