The Impact of Capital Structure on Firm's Value: Review of Pakistan's Oil & Gas Marketing Companies

Purpose of this paper is to identify the impact of capital structure on firm's market value. Researchers have always had their focus strengthened on gauging the impact of capital structure in manufacturing industries market value, however; this research is based on oil and gas marketing companies in Pakistan. The link between three determinants of capital structure; leverage, profitability and growth sales will be examined to see how these factors influence market value of the firm. Ten years financial data of pubic listed oil and gas marketing companies in Pakistan is attained through various secondary sources. Panel Regression technique is applied for data analysis. Profitability and sales growth has a positive relationship with market value in the selected industry where as leverage has inverse relationship with the firm's value. In addition to this, the only determinant of capital structure having a significant impact on firm's value is profitability of companies in this industry. The model of this research proposes that the profitability needs to be focus area of the oil and gas marketing company in order to increase shareholder's wealth because other various capital structure determinants may not cause any significant impact on the market value. Researchers stress less in oil and gas industry and mostly the researches are based on manufacturing industries and hospitality businesses. This research paper can be a stepping-stone to further studies regarding further determinants of capital structure and impact on market value external factors intervention on capital structure of the firm causing impact on firm's value