The capital structure and financial performance of service sector firms listed in the Philippine Stock Exchange (for the period 2018-2022)

Abstract

This study was conducted to describe the capital structure and financial performance of service sector firms listed in the Philippine Stock Exchange for the period of 2018 to 2022, with the aim of filling in the gap in understanding the dynamics of capital structure and financial performance of firms within a certain period and within the context of the Philippine service sector. The study utilized a descriptive-correlational research design to describe the profiles and determine the differences or relationships between the Capital Structure (Debt and Debt-to-Equity ratio) and Financial Performance (Return on Equity, Return on Assets, and Current ratio) of the service sector firms listed in the Philippine Stock Exchange. The results showed an existing majority when the firms were grouped by subsector, length of operations, year listed in the PSE, and market value. Also, the higher D/E ratio of the transportation services subsector was the only significant statistical difference found among the firms in terms of their capital structure (D/E ratio in particular) when grouped by subsector, length of operations, year listed in the PSE, and market value. This suggests that firms within the transportation services subsector are more heavily reliant on debt compared to other subsectors in the study which may be due to the specific characteristics and requirements of the transportation services subsector. In addition, an inverse relationship was found when pairing the determinants (Debt ratio and ROA). Similarly, the pairing of capital structure ratios (Debt and D/E ratio) with Current Ratio exhibited an inverse relationship as well. The service sector firms listed in the PSE may enhance their understanding on the effective capital structure management within their firms by taking into consideration the capital structure and financial performance description including the differences and relationships revealed in the results of this study.