Enhancing Financial Performance and Market Acceptance Through Golden Ratio-Based Capital Structure Decisions: An Empirical Investigation in the Manufacturing and Services Sectors

Main Article Content

Naveed Khan
Hassan Zada
Wing-Keung Wong

Abstract

The discovery of the golden ratio and the development and the theory for the golden ratio in modern science have witnessed the use of the ratio across many fields, including business, economics and finance. However, the ratio has rarely been used in solving corporate problems, such as fundamental analysis and capital structure decisions. To bridge the gap in the literature, in this paper, we examine the role of the golden ratio in deciding the capital structure and its effect on the firm’s financial performance and market acceptance for the manufacturing and services sector listed on the Pakistan Stock Exchange for the period from 2010 to 2019. In our analysis, we find a significant association between the deviation from the capital structure and the variation of the firm’s financial performance and market acceptance by using the golden ratio. The empirical findings of this study suggest that the golden ratio is an efficient tool for measuring capital structure and is useful for firms to boost financial performance and market acceptance. In general, the findings in our paper suggest financial managers of both the manufacturing and services sectors use a 38.2% ratio of equity and 61.8% of debt at the capital structure level. To the best of our knowledge, no prior studies in the literature have examined the role of the golden ratio in deciding an optimal level of capital structure in Pakistan. Therefore, our paper has a significant contribution to the existing literature, and the empirical findings of the study are found strong and more evident for manufacturing than the services sector. Moreover, the findings in our paper also suggest managers in Pakistan apply the aforementioned percentage of debt and equity in capital structure level subject to performance measurement.

Article Details

How to Cite
Enhancing Financial Performance and Market Acceptance Through Golden Ratio-Based Capital Structure Decisions: An Empirical Investigation in the Manufacturing and Services Sectors. (2023). Asian Academy of Management Journal of Accounting and Finance, 19(2), 41-70. https://doi.org/10.21315/aamjaf2023.19.2.2
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