Effect of Capital Structure on Firm Profitability (An Empirical Evidence from London, UK)

Abstract

This paper intends to explore the effect of capital structure on firm profitability. For the purpose of empirically investigating the effect of capital structure, a sample of 30 firms have been selected from FTSE-100 index of the London Stock Exchange. The data period for the study was 2005 to 2014. The study used multiple regression analysis method to explore the impact of capital structure on firm performance. The results revealed that Interest Coverage has positive significant impact on ROA, ROE and ROIC where DE has positive significant impact on ROE but negative significant impact on ROA and ROIC. The study concluded that an optimal level of capital structure, effective utilization and allocation of resources shall be employed to achieve the targeted level of efficiency in business.