Impact of interest rate on capital structure decisions in cement industry of Pakistan

Abstract

The core purpose of this study provides more clear view about the observed factors or determinants of the optimal capital structure in the cement industry of Islamic Republic of Pakistan. This study is going to examine the interest rate changing and increasing inflation rate because of unstable economy, weather it forces the firms to change their decisions about capital structure or firm try to adjust or how the adjust according to changing aspects. The results drawn after implications of this study concluded that the relation between rate of interest and debt financing (Long-term) is positive i.e. with the increase in rate of interest organizations rather go of debt financing (Long-term) and on the other side if there is decrease in the rate of interest organization feel more confident in choosing debt financing (short-term). However, the results for inflation are vice versa i.e. with increase in rate of inflation the organization rather go for debt financing (short-term) and as there prevails less inflation the market organization are more confident to choose debt financing (long-term) while deciding upon the structures of their organizations the aforementioned sector i.e. Cement sector of Pakistan