Abstract:
This research analyzes the impact of liquidity and capital structure on the performance
of organizations in Pakistan. Given the contradictions in the researches done on the
relationship, the study was aimed at gaining more insights about the impacts in a
developing country. The study was based on four industries while taking five
companies from each industry on random basis, irrespective of the size of firms, listed
on Karachi Stock Exchange. Five-year data from July 2009 to June 2014 was
analyzed during the study. The study was based on quantitative techniques and was
conducted by use of secondary data. The analyses was done with the help of SPSS
and instruments used were descriptive analysis, Pearson correlation and regression
analysis. The study was longitudinal in nature and identification of causal
relationships was out of the scope of this research. The study found no significant
impact of capital structure on performance and apart from few instances like investor
reaction and quick ratio’s impact on ROA, in which case there was a positive
relationship, as well as significant relationship for cement industry, liquidity was
found to have no significant impact on performance of companies. This signifies the
important of analyzing the differences in the generalization of theories from one
setting to another and organizations cannot rely wholly on theories applicable in
western world. In addition, the study points out to the fact that more research is
needed for understanding any relationship in developing countries.
