THE EFFECT OF PROFITABILITY ON FIRM VALUE WITH MEDIATING ROLE OF CAPITAL STRUCTURE

Abstract

The purpose of this study is to check the effect of Profitability on Firm Value with the mediating role of capital structure in non-financial firms listed in Pakistan Stock Exchange (PSX). For the purpose 29 listed companies from the sugar industry were selected for a period of six years from 2014 to 2019 with 174 observations. Profitability proxy by Return on Assets (ROA) was used as independent variable. Firm’s value proxy by market price per share to book price per share (PBV) as dependent variable and similarly, capital structure proxy by long term debt to total equity ratio (DER), as intervening variable were used in the study. Panel Data techniques has employed to foresee the significant relationship among the variables using Hyes Process Macro Method 4 in SPSS for mediation. Results showed that profitability has a positive significant effect on the firm values whereas negative significant effect on capital structure. The capital structure have the positive significant effect on firm values using profitability as controlling variable. The profitability also has positive significant effect on the firm values using capital structure as control variable. Therefore, the profitability have a positive and significant effect on the profitability with a significant mediating role of capital structure and the conducted study concluded the partial mediation effect.