A STUDY OF RELATIONSHIP OF CAPITAL STURCTURE AND FIRM’S PERFORMANCE OF PHARMACEUTICAL COMPANIES LISTED IN PSX

Abstract

Purpose This empirical study explorethe capital structure and company’s performance of the Pharmaceutical companies registered on the Pakistan Stock Exchange (PSX 100 Index) for the period from 2006 to 2015. Moreover, this study also examines the relationship between the capital structure and the company’s performance. Methodology/ Sample Capital structure is denoted by two variables, they are (i) debt ratio (DR) (ii) debt to equity ratio (DE). Firm’s performance is represented by four variables, they are (i) return on assets (ROA) (ii) return on equity (ROE) (iii) earnings per share (EPS) (iv) net income (NI). This empirical study uses the secondary data obtained from the six pharmaceutical firm’s listed in PSX. Findings The correlation of coefficients between the variables of capital structure and company’s performance represent there is a linkageamong the capital structure and the performance of the companies. In addition, the findings of this empirical study showed that debt ratio has negative significant relationship with ROA, ROE, and EPS & NI. But debt to equity ratio has positive significant relationship with the NI, ROE and insignificant relationship with ROA and EPS. Practical Implications This study will help the pharmaceutical companies better know how about their sectors performance overall. This study will help the management of the companies to get the most recent knowledge and make decision accordingly to gain profits and slow down their costs