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Kalinangan Refereed Journal

Volume no. 27 | 2019/4
Issue no. 1


Title
RELEVANCE OF CAPITAL STRUCTURE IN THE CORPORATE FINANCIAL PERFORMANCE: EVIDENCE FROM TOP EARNING PUBLICLY-LISTED COMPANIES IN THE PHILIPPINES
Author
Cabrera, Doringer P., CPA, Ph.D.; Castillo, Maria Corazon C., CPA, MBA; De Castro, Francis P., CPA; Ocampo, Alena M., CPA
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Abstract
It is a fact that one of the dilemmas of financial managers and investors is whether there exists an optimal capital structure and how various capital structure decisions, both short-term and long-term influence business performance. Thus, this study attempted to describe the capital structure and financial performance of the top 40 earning publicly-listed companies in the Philippines and investigate their relationship as a guide for decision makers. The descriptive method of research was used in this study employing frequency and percentage and multiple regression as statistical tools. The study used secondary panel data contained in the annual reports and financial statements of the subject publicly-listed companies for the year 2012-2016. It showed that the top earning publicly-listed companies in the Philippines are classified as holding firms with 2016 net income after tax of not more than P20 billion and they rely mainly on long-term debt as a source of their financing. Also, it was found out that there is no significant relationship between the capital structure and financial performance although among the several ratios evaluated for the subject companies, the equity ratio and debt to equity ratio appear to be significant in forecasting the operating profit margin. Based on the findings, capital structure should be highly considered as one of the sensitive decision areas and magnitude of leverage should be maintained at a possibly minimum level. The financial managers should make an effort to attain an optimal level of capital structure and endeavor to uphold it as much as possible.
Keywords
capital structure, financial performance, publicly-listed companies, operating profit margin, debt and equity
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