The impact of capital structure on profitability on the banks active in Pakistan

Abstract

Companies can utilize both equity and debt investment to fund their assets. The ideal selection is the combination of debt and equity. This analysis primarily examines exactly how much the capital structure influences the Profitability of banks active in Pakistan. This investigation makes an attempt to determine the standard connection about how much the capital structure impacts the income of the banks and what correlation is their among capital structure and Profitability. This research is taken out after classification the chosen banks into three groups centered on the annual income after tax. Banks are arranged into lower, moderate and higher income groups to create the speculated connection that capital structure possesses substantial influence on Profitability of Banking firms in Pakistan. For the research, a sample of 15 banks was selected. The information during the period of 5 financial years starting from 2008 to 2012 have been accumulated and viewed as for the evaluation. Regression Analysis is used to observe the distinctive effect of capital structure on Profitability, furthermore detailed stats has been used like Standard Deviation, Mean, and Ratios. The analysis testifies that there is a solid connection among profitability variables i.e. Return on Equity (ROE) and Return on Asset (ROA) and capital structure variables, and by utilizing more of financial debt investment in capital structure is likely to decrease the net earnings of the banks listed at the Karachi Stock Exchange KSE.