Abstract
The basic purpose of our research paper is to analyze the impact of financing decisions on the firm’s performance in Pakistani listed firms in KSE. The OLS has been employed on a sample of conveniently selected 100 pakistanilisted firms in KSE (with 600 observations) over the period of 2004 to 2009.Financing decisions are measured through debt to equity and firm’s performance measured through ROE, ROA, Tobin’s Q and market capitalization.Ourresults show that the financing decisions have no significant impact on firm’s performance in Pakistan.
Highlights
Most of the firms issue bonds and equity in order to meet cash requirements at present and in future
The market timing theory posits that firms issue equity when the relative cost of equity is low and issue debt when the relative cost of debt is low.One of the main theories of how firms make their financing decisions is the pecking order theory, which suggests that firms avoid external financing while they have internal financing available and avoid new equity financing while they can engage in new debt financing at reasonably low interest rates
We find that financing decisions have no significant impact on firm performance
Summary
Most of the firms issue bonds (debt) and equity in order to meet cash requirements at present and in future To achieve this objective firms rebalance its capital structure by changing the proportionate of debt and equity. Financing decisions concerned the use of debt and equity and firm’s performance is judged through ROA, ROE, Tobin’s Q ratioand the value of market capitalization of the firm. The market timing theory posits that firms issue equity when the relative cost of equity is low and issue debt when the relative cost of debt is low.One of the main theories of how firms make their financing decisions is the pecking order theory, which suggests that firms avoid external financing while they have internal financing available and avoid new equity financing while they can engage in new debt financing at reasonably low interest rates. Which seem consistent with the perfect capital market theory of (Modigliani & Miller, 1958)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
