Impact of Capital Structure on Firm Performance in the Pharmaceutical Sector of Pakistan

Abstract

The study aimed at analyzing the effect on the financial performance of pharmaceutical companies on the Pakistan Stock Exchange (PSX) from 2016 to 2025. This study uses pooled Ordinary Least Squares (OLS) regression analysis for investigating the effective of the Quick Ratio (QR) Current Ratio (CR) and Debt to Assets Ratio (DAR) on Earnings Per Share (EPS) using an instable panel data set of nine pharmaceutical companies listed on the PSX (N = 90 observations). All four series are stationary at level I (0), and the results from the augmented Dickey-Fuller (ADF) unit root tests confirm this. Simple regression analysis expressed the Quick Ratio had a positive and statistically significant influence on EPS (β = 11.346, p = 0.003), and multiple regression analysis yielded similar results (β = 17.25, p = 0.024). The Current Ratio is significant in the simple regression model (p = 0.035), but is not significant in the combined model due to high multicollinearity with the Quick Ratio (r = 0.863). The Debt-to-Assets ratio shows the theoretically expected negative relationship with EPS which in this sample, is not significant at conventional levels. The overall multiple regression model is statistically significant with F = 3.354; p = 0.023; Adjusted R² = 7.35%. The results highlight that short-term liquidity management has a greater influence on shareholders' value than leverage in the pharmaceutical industry of Pakistan, which has significant implications for the financial strategy of the companies, investors' decision-making, and regulatory policies.