Impact of Capital Structure on Profitability

This study seeks to investigate the issues related to financing decision and the profitability of the listed firms at the Karachi Stock Exchange (KSE). By performing this investigation we try to find out that if Pakistani listed firms at KSE follow any capital structure theory during the period 2007-2014. As the study based on the panel data of 40non financial listed companies at Karachi Stock Exchange for the period of 2007-2014, the companies are selected on the basis of stratified Random sampling. OLS Regression analysis is used to analyze the relationship between profitability and financing by debts. The relationship is found for short term debts, long term debts and total debts. Size and growth are used as control variables in the study. The results showed a significant relationship of independent variables to dependent variables. The results regarding leverage and profitability reveal that there is an inverse relationship between the use of debt in capital structure and profitability. The over usage of debt in the capital structure is responsible for these results. Size and sales growth has positive relationship with the profitability.