Abstract:
Purpose: This study aims to identify the determinants of the optimal capital structure and its effect on
firm’s growth and financing behavior in fuel and energy sector of Pakistan.
Methodology/sample: The impact of growth opportunity, earning volatility, profitability, liquidity,
NDTS, size of the firm, asset tangibility and taxes on the capital structure of KSE listed fuel and
energy firms was investigated. Panel data for 23 companies for period of five year (2009 - 2013) was
analyzed using correlation and regression.
Findings: The results showed that capital structure has negative correlation with earning volatility,
liquidity and taxes, whereas it is positively correlated with growth opportunity, profitability, NDTS,
size of the firm and asset tangibility. Earning volatility, liquidity, growth opportunity and profitability
are statistically significant whereas size of the firm, asset tangibility, NDTS and taxes are statistically
insignificant.
Practical implications: The findings of this research enhance the knowledge of the determinants of
optimal capital structure and are likely to help firms take effective capital structure related decisions.
Furthermore this study is likely to help financial decision makers better adjust towards considering and
adopting proficient ways to manage firms capital structure.
