Abstract
This study examined the impact of capital structure on profitability. Data is collected from 71 non-financial firms listed on KSE (100 index) from the period of 2008-2013. Random panel regression methodology is used to measure the association between capital structure and the firm's profitability. The capital structure is measured by debt-to-equity ratio, short term debt to total assets, long term debt to total assets while the return on equity is used as a proxy of profitability. The results of this study show that STD has a positive and significant impact on ROE while LTD has a negative and insignificant effect on ROE. Debt to equity ratio also has a positive and insignificant relationship with ROE. The result shows that management of firms listed on KSE should use more current liabilities as compared to long term debt because it increases the profitability and wealth of shareholders.