Factors effecting leverage in the nonfinancial sector of Pakistan : An empirical study of petroleum sector companies listed on KSE

Abstract

Purpose – The main aim of this study is to investigate the factors that are affecting the leverage for the firm while determining the capital structure of the firm and the empirical findings based on the ten nonfinancial companies from the petroleum sector of Pakistan listed in Karachi stock exchange of Pakistan (KSE 100 Index). Design/methodology/approach – Multiple statistical tools are used to examine the empirical finding of this study based on sample data. Descriptive statistics, correlation matrix and multiple regression models are used for finding the factors that have an impact on to leverage of the firm and hence affecting the financial performance of the firm. Here leverage is the dependent variable whereas firm’s profitability, growth, tangibility, tax, risk and firm size are the independent variables. The sample is based on ten companies form the petroleum sector of Pakistan and data is analyzed from 2005 to 2013. The data is collected from the financial statements of the companies available on company websites.. Results – The companies in the petroleum sector uses leverage of about 6% approx, which highlights the fact that these firms are mostly dependent on their internal source of financing or either using equity to finance their long term investment decisions and leverage and debt financing is contributing to a very limited extent.