13-09-2017, 04:14 PM
Determining the capital structure of a company is a difficult decision that involves several conflicting factors. Profitability is the main factor to consider when designing the capital structure of a company. The purpose of this paper is to examine to what extent growth determines the capital structure of IFCI Ltd. This is done by examining some components of the capital structure in relation to IFCI Ltd. and then empirically testing the resulting ideas.
Despite substantial theoretical developments in the field of corporate finance in recent decades, the gap between theory and practice still needs to be reconciled. This paper empirically investigates the relationship between the capital structure and the financial performance of the Pakistani textile sector, using panel data extracted from the financial statements of companies listed on the Karachi Stock Exchange. The rationale behind the industry-specific analysis is the fact that exogenous variables seem to bind firms in the same industry in a similar way, leading to the existence of an industry-specific capital structure. It is found that there is a significant positive relationship between short-term debt and profitability and the statistically significant negative relationship between long-term debt and profitability. The results are partially consistent with previous studies, since the negative relationship between long-term debt and company performance tends to dominate the dominant hierarchical theory. The association of short-term debt and financial performance, in contrast, attests to the static theory of the trade-off. The total debt as a whole has no relation to the performance of the company due to inherited characteristics of short-term debt and long-term debt.
Despite substantial theoretical developments in the field of corporate finance in recent decades, the gap between theory and practice still needs to be reconciled. This paper empirically investigates the relationship between the capital structure and the financial performance of the Pakistani textile sector, using panel data extracted from the financial statements of companies listed on the Karachi Stock Exchange. The rationale behind the industry-specific analysis is the fact that exogenous variables seem to bind firms in the same industry in a similar way, leading to the existence of an industry-specific capital structure. It is found that there is a significant positive relationship between short-term debt and profitability and the statistically significant negative relationship between long-term debt and profitability. The results are partially consistent with previous studies, since the negative relationship between long-term debt and company performance tends to dominate the dominant hierarchical theory. The association of short-term debt and financial performance, in contrast, attests to the static theory of the trade-off. The total debt as a whole has no relation to the performance of the company due to inherited characteristics of short-term debt and long-term debt.