Capital structure impact on firm performance: An empirical study of the pharmaceutical sector in India

The paper seeks to study the impact of capital structure on the profitability of the top twenty pharmaceutical companies based on market capitalization. Only companies listed on the National Stock Exchange (NSE) were selected for the analysis purposes. In this study, we collected five years (2018–2022) data for the empirical investigation using panel data regression analysis. Four dependent variables (return on equity, return on assets, earning per share, and Tobin’s Q) and three independent variables (long-term debt ratio, short-term debt ratio and total debt ratios) were selected to measure financial performance and capital structure, respectively. Size is a control variable. The results indicated that firm performance, which was measured by return on asset, return on equity, and earnings per share, has a significant negative relationship with short-term debt ratio, long-term debt ratio, and total debt ratio. Tobin’s Q showed no relationship with short-term debt and long-term debt. The paper adds to the emerging body of literature on capital structure and financial performance relationship in the Indian context using a newer data set.