Capital Structure, Business Strategy and Firm’s Performance: Evidence from Pakistan

Abstract

The core objective of the current study is to explore the moderating role of business strategy on the established relationship between capital structure and firm performance by selecting the data of 333 non-financial firms of Pakistan over the period of 2006 to 2013. The empirical results indicate that debt financing is imperative both for the accounting and market performance of the selected firms while attempting to pursue the cost leadership strategy. Moreover, as the firms follow the hybrid strategy, product differentiation strategy and firms with unclear strategic situation, the benefits of debt decreases and incurs a significant performance penalty.