Abstract
The purpose of this research is to empirically examine the impact which capital structure choice has on the financial risk of the Pakistani firms listed in Karachi stock exchange (KSE). It examines the relevant literature on capital structure and financial risk from different methodological strands and synthesis. This literature review shows the challenges that remain in the firms for quantifying and measuring the impact of capital structure and financial risk. The research Methodology adopted by the researchers is based on the ideology of objectivism. This study used descriptive statistics, Pearson correlation matrix and econometric model pooled OLS for analysis of the panel data was applied to 58 companies in Pakistani market listed on Karachi stock exchange (KSE) selected to estimates the effects of capital structure of firms financial risk for the period of 2004 to 2011. The results of the study show that capital structure measured by Long-term debt to total assets, Short term debt to total assets and Total debt to total assets have a significant positive effect on firm’s financial risk measure (Beta and Total risk). Firms listed on KSE of Pakistan are largely dependent on equity and short-term debt but debts are attached with strong covenant which increase the financial risk of the firm. This study discloses a noticeable fact that Pakistani firms are either mostly financed by equity capital or a mixture of equity capital and short term financing. This is the first paper to study multiple sectors in Pakistan on the stated topic and contribute to the existing literature.
Dr. Hakim Ali Mahesar, , Abdul Wahid Zehri 2, Afifa Zafar, Dr. Naveed Iqbal Chaudhry. (2015) Impact of Capital Structuring on the Financial Risk: A Study on the Listed Companies in Pakistan, Balochistan Review, Volume 2, Issue 2.
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