Profit Margin And Capital Structure: An Empirical Relationship

Abstract

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Batang;">This study constitutes an attempt to investigate the relationship between debt-to equity ratio and firm’s profitability, taking into consideration the level of firms’ investment and the degree of market power.<span style="mso-spacerun: yes;">  </span>The study uses panel data for various industries, covering the period 1995-96.<span style="mso-spacerun: yes;">  </span>The main conclusions of our study are: a) firms which prefer to finance their investment activities through self-finance are more profitable than firms which finance investment through borrowed capital; b) firms prefer competing with each other than cooperating; c) firms use their investment in fixed assets as a strategic variable to affect profitability. </span></span></span></p>