Impact of Capital Structure on Stock Return in the Context of Oil & Gas Sector of Pakistan

Abstract

Capital structure has central importance to evaluate the overall return of the firms, and it is more important to know that whether the stock return are sensitive to change in capital structure. This study investigates the impact of capital structure on stock return in the context of oil and gas sector of Pakistan. For this purpose the analysis is conducted on 10 oil and gas companies operating in Pakistan on the basis of availability of data over the period of 2005 to 2014. To examine the impact, stock return is taken as a dependent variable and debt to equity, financial leverage as independent variables. A simple correlation and regression models are used to test the results. This study concluded that the variation in capital structure does affect the stock return of oil and gas companies in Pakistan. Furthermore, debt to equity ratio and financial leverage positively affect stock return.