FINANCIAL STRUCTURE AND FIRM'S FINANCIAL PERFORMANCE: EMPIRICAL EVIDENCE OF FINANCIAL SECTOR OF PAKISTAN

ABSTRACT

The basic purpose in the study is to find out the effect of financial structure (equity financing and debt financing) along with other determining factors on performance of companies in overall Pakistani Financial Industry of companies listed in PSX for the period of ten years from 2010-2020.The Financial sector’s Performance is measured by EBIT to Total Assets (Profitability) in the study while debt financing and equity financing as measure of financial structure along with other determining factors like firm’s size, firm’s growth, liquidity ratio, tax ratio and interest coverage ratio were used as independent variables. The source of data was “Financial statement analysis of the companies in Pakistani Financial Industry”. It is an annual publication by state bank of Pakistan”, available online at their respective website. The Fixed Effect Regression Model was used in the study after conforming its significance through Hausman specification test (1978) at Prob > Chi² = 0.0006.  The nature of data set was short panel while the targeted population was around 182 firms of financial sector. The research used a sample of 140 companies of this sector and excluded the remaining firms due to their deficiency of providing complete financial data for the period of study. The findings of the study revealed that financial structure (equity financing and debt financing) has significantly positive effect on financial structure in overall Pakistani Financial Industry. The other determining factors of financial performance are firm’s size and liquidity ratio that significantly affecting the financial performance in this sector.