Abstract
The article examines and analyzes the relationship of key performance indicators (ROA, ROIC, change in market capitalization and price-to-book ratio) and the capital structure of the company based on the pharmaceutical industry in the UK for the 2009-2019 period. The study seeks to provide a practical evidence on the impact of external financing on company’s financial performance and test applicability of the pecking order theory for the chosen companies. The research conducted uses panel data regression and Wald test to determine and analyze the effect of capital structure on the financial indicators of the company performance. The study used a sample of 185 UK companies from the pharmaceutical industry. The result of the research showed that equity has negative effect on price-to-book ratio and ROA and positive effect on change in market capitalization, while long-term debt has a positive relationship with price- to-book ratio and change in market capitalization. In addition, short-term debt has a negative effect on change in market capitalization, ROA and ROIC. The study also provides only partly coincidence of the results with the pecking order theory.
Highlights
Since the 20th century, ways to evaluate company’s development have been actively discussed and explored
According to the results obtained, all independent variables have a significant factor at p-values of 0,0253 for short-term debt, 0 for long-term debt and 0 for growth rate of outstanding shares which is lower 10%
That means that the amount of variance in the dependent variables that is predictable from the independent variables is low
Summary
Since the 20th century, ways to evaluate company’s development have been actively discussed and explored. One of the generally accepted financial measures is considered to be company’s financial performance, which represents a subjective measure of the firm’s effectiveness in using assets of primary occupation and generating revenues. Financial performance indicates the overall financial health of a company for a certain period of time [4]. To improve the financial performance internal and external sources of financing are chosen by the company, which subsequently affect its capital structure. Starting from the 50s of the last century various theories of capital structure are being developed, which are trying to find the best option for firms financing that will help them develop actively and improve their performance [1]
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