The impact of debt and equity decisions on business performance: Evidence from International Airline Corporation

Abstract

Capital structure decision remains always interesting puzzle for practitioner as well as for researchers. Capital structure of company fluctuates from company to company, country to country, nature of business to business and firm age to age. The current study examines the impact of capital structure (financial leverage and equity decision) on airline performance. The analysis is performed on secondary data. Data is taken from the financial statements of under consideration study of Pakistan International Airline. Sample period is taken from 2004 to 2020. The financial performance is measured by ROA and ROE, while independent variables are debt to asset (DTA), debt to equity (DTE), and size (natural log of total assets). Two econometric models are developed for the analysis. Regression and correlation are used to measure the impact of debt and equity on company performance. The study demonstrated that DTA has a statistically significant negative relationship with the dependent variable, ROA. Model 1 results indicated that only DTA was the good predictor of ROA and size had no significant relationship with ROA. Model 2 results demonstrated that the size had a significant but positive relationship with ROE. Meanwhile, DTA had an insignificant association with ROE.