Impact of Debt Financing on Operating, Financial and Stock Market Performance: Does Economic Cycle Empirically Matter

Abstract

The Corpus of a mix of financing inserts a substantial force to drive the direction of the outcome of the firm.  The motive of this paper is to realize the maximum contribution of debt financing on lifting the performance in the sugar sector of Pakistan in consortium with the changing paradigm of GDP. To gauge the contribution of the debt financing in the total financing has been operationalized through book-leverage and market-leverage whereas the firm’s performance is considered as operating, financial, and the stock market. The Panel Regression Analysis was employed on the data of 27 firms in the sugar sector, itemized in the Pakistan Stock Market for the period of 2001-19. The outcomes revealed that book leverage influenced the operating and financial performance of the firms negatively while having a positive impression on stock market outcomes. In the case of the sub-sample, measured by an economic cycle taking the low percentile and high percentile of GDP, the effect became deviant. The said effect in the case of the overall sample was observed consistent when GDP was in the high percentile. In the case of low GDP, the impression of leverage was favorable in all three performing areas of the firm. The study contributes valuable insights into the existing literature, especially in the context of the influence of the economy on the usage of debt and firm performance and to the policymakers relating to borrowing and lending schema for being alert in the financing decision.