determinants affecting capital structure OF OIL AND GAS MARKETING COMPANIES IN PAKISTAN: PANEL DATA ANALYSIS

Abstract

Purpose: The study examines how the Determinants are affecting the Capital Structure of Oil and Gas Marketing Companies listed on Pakistan Stock Exchange (PSX) using annual financial data for calculating the ratios from 2006 to 2015. The dependent variable is Leverage Ratio (Debt to Equity Ratio) and the independent variables are Profitability Ratio, Firm Size, Firm Growth and Tangibility of Assets. Methodology: The Multiple Regression Analysis for the Panel Data has been done by using three models Pooled Ordinary Least Square Method, Fixed Effect Method & Random Effect Method. Hausman Test is applied to find the appropriate model for the analysis, which suggests that the Random Effect Model is appropriate and Correlation Matrix is applied to check the relationship. Findings: Results suggest that the Profitability Ratio and Tangibility of Asset have significant negative relation with the Leverage Ratio while the Firms Size & Firms Growth has significant positive relation with the Leverage Ratio of oil and gas marketing companies listed on Pakistan Stock Exchange. Conclusions: The current study analyses that the oil and gas marketing companies in Pakistan are highly profitable but their expansion decisions are based more on retained earnings rather analyzing the optimal capital structure for making new investment or expansion decisions. Recommendation: The study recommends that the oil and gas marketing companies should meet their financing requirements through debt rather than covering it with equity, it will reduce their cost of holding the equity expenses. The optimal capital structure will be achieved and the market pnce of the company will be maximum and Weighted Average Cost of Capital (WACC) minimum.