Last Updated on October 5, 2023 by Fiza Khurram
The intricate relationship between capital structure, ownership structure, and financial performance of firms listed on the KSE-100 index in the Pakistan Stock Exchange was meticulously explored in a comprehensive study led by Jamal Shah, Jameel Ahmed, and Nadir Khan from the Institute of Management Sciences at the University of Balochistan.
The study used panel data from 90 publicly traded companies from 2009 to 2018, and it used two fundamental indicators of capital structure: debt-to-equity ratio and debt-to-total-assets ratio. Furthermore, the impact of three indicators of ownership structure—foreign ownership, institutional ownership, and managerial ownership—on financial performance was examined using return on assets, return on equity, and Tobin’s Q.
The researchers used E-Views version 10 to unravel the subtle correlations between the variables by using Ordinary Least Square (OLS) models, descriptive statistics, and correlation analysis. Financial performance (particularly, return on assets) and capital structure indicators (debt to equity and debt to total assets) were found to have a substantial negative link in the empirical data.
Furthermore, the analysis revealed that there was a substantial positive association between ownership structure and business financial performance, particularly with regard to foreign and institutional ownership. When assessed against return on assets, the link was deemed inconsequential and adversely correlated with managerial ownership.
These findings highlight the need of paying attention to foreign ownership trends in Pakistan, which are on the rise. The study’s findings are useful for stakeholders such as creditors, investors, government organizations, employees, suppliers, businesses, and managers. It explains how ownership arrangements and finance techniques affect performance, allowing stakeholders to make more informed decisions regarding their future investments.
Finally, this study not only contributes to a better understanding of the dynamic interplay between capital and ownership arrangements, but it also serves as a road map for stockholders and stakeholders navigating the financial terrain.
