Debt Financing and Performance of Firms in Pakistan

Abstract

The examination of variables that can affect the profitability of the firms is the main purpose of this study. The aim of this study is to find out the effects of dependent on independent variables thoroughly. Profitability is the dependent variable used in this study and accounts payables, short term debt and long-term debt and the control variables are size, and age of the firms are the independent variables that has been used. For this purpose, the quantitative approach has been used. All the data has been used in this study is collected from the official website of Pakistan Stock Exchange PSX. The result of this study shows that the no other variable has any significant impact on the profitability of firms accept long term debt. This means that the companies should go for equity financing and not for the debt financing. All variables of debt financing that are considered for this study are, short term debt, long term debt and accounts payable suggests that companies should go for equity financing. The control variables of the study do not have any effect on the profitability of the firm but for the SMEs the size of the firms impacts the profitability. The managers of the firms should go for the internal financing for the higher profitability.