| Title |
Firm, industry, and country level determinants of capital structure: evidence from Pakistan |
| ID_Doc |
68025 |
| Authors |
Ahsan, T; Wang, M; Qureshi, MA |
| Title |
Firm, industry, and country level determinants of capital structure: evidence from Pakistan |
| Year |
2016 |
| Published |
South Asian Journal Of Global Business Research, 5, 3 |
| Abstract |
Purpose - The purpose of this paper is to find out firm, industry, and country level determinants of capital structure of Pakistani listed non-financial firms. Design/methodology/approach - The authors use a fixed effects panel data model over a 39 years (1972-2010) unbalanced panel data of Pakistani non-financial listed firms to determine the factors that influence capital structure of these firms. Findings - The authors find that Pakistani firms prefer retained earnings to finance their business projects, and debt is easily available for experienced firms. Moreover, socio-economic collusive networks, poor corporate governance mechanism along with weak legal system provide these firms an opportunity to pass on their risk to the creditors (banks). Research limitations/implications - The data set does not contain factors characterizing inter-industry heterogeneity, therefore, the authors use mean industry leverage and mean industry profitability to explore if any relationship exists between leverage of firms, and their respective industry leverage/profitability. Practical implications - Pakistani non-financial firms are highly leveraged increasing their probability to face financial distress in erratic economic conditions. As such, the policy makers need to develop capital markets of Pakistan to enable a resilient corporate capital structure. Further, erratic economic conditions of Pakistan create uncertain business environment yielding short-term opportunities and to finance them Pakistani firms use short-term debt as a main financing source. The policy makers need to improve corporate governance mechanism and strengthen legal system that will go a long way to develop Pakistani capital market on sound and sustainable footing. Originality/value - This is the first study that uses an extended number of variables and discovers financial behavior of firms in a bank-based economy having limited financing options, and facing erratic economic conditions. |
| PDF |
|
