Determinants of Capital Structure: Empirical Evidence from Pakistan

67 Pages Posted: 26 Dec 2011

See all articles by Irfan Ali

Irfan Ali

affiliation not provided to SSRN

Date Written: March 29, 2011

Abstract

This study investigates capital structure of nonfinancial firms registered on Karachi Stock Exchange (Pakistan) from 2003 to 2008 to find which independent variables determine the capital structure of Pakistani firms. We find statistically significant coefficients for profitability, size, tangibility, growth, dividend and inflation. The negative relationships between profitability and leverage; positive relationships between growth and long term debt and dividend and total debt of firms confirm the presence of pecking order theory in determining the financing behavior of Pakistani firms. The strong positive relationships between tangibility and leverage and size and leverage support the theoretical predictions of trade-off theory. The positive relationship between expected future inflation and current borrowing supports market timing theory. The research finds significant change in financing behavior of firms across industries. We find partially different results from other studies in Pakistan as well as in developing countries. Conclusion from prior research from developed world is also valid in Pakistan.

Suggested Citation

Ali, Irfan, Determinants of Capital Structure: Empirical Evidence from Pakistan (March 29, 2011). Available at SSRN: https://ssrn.com/abstract=1977024 or http://dx.doi.org/10.2139/ssrn.1977024

Irfan Ali (Contact Author)

affiliation not provided to SSRN ( email )

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