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Do group affiliated firms specialize in debt? Evidence from Pakistan

Author

Listed:
  • Qamar Uz Zaman Malik
  • Talat Afza

Abstract

Purpose - – The purpose of this paper is to examine the debt structure of group affiliated firms in Pakistan for the period of 2009-2011. The study seeks to know the level of debt specialization in group affiliated firms. If they do; then how are they different from stand-alone firms? Design/methodology/approach - – The study primarily uses Herfindahl-Hirschman Index and Excl90 as measures of debt specialization, which are further used in cluster, threshold and conditional analysis. Corporate groups are characterized to subsidize their affiliates through internal debt market and loan guarantee. Logistic regression model is used to analyze association among the measures of debt specialization and firm-specific characteristics for group affiliated and stand-alone firms. Findings - – The results show that about 85 percent firms use more than 50 percent of debt from one debt type. However, group affiliated firms are more inclined toward debt specialization than stand-alone firms. Tangibility and book leverage are negatively and significantly associated to the measures of debt specialization. Moreover, internal debt market and loan guarantee are suggestive reasons of debt specialization in group affiliated firms. Practical implications - – This study highlights the issue of group affiliation and its significance on firm’s debt structure. It has implications for determination of the optimal financing strategy. In the context of emerging economies, group affiliated firms can create market imperfections as a protection shield. In case of emerging markets, it is recommended to strengthen regulatory mechanism to avoid such market imperfections. Originality/value - – Prior studies have explored the phenomenon of debt specialization for rated and unrated firms. However, firm group affiliation is widely studied in the context of capital structure. This is a pioneer study to establish and analyze a link between firm group affiliation and debt specialization.

Suggested Citation

  • Qamar Uz Zaman Malik & Talat Afza, 2016. "Do group affiliated firms specialize in debt? Evidence from Pakistan," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 32(1), pages 46-62, May.
    • Handle: RePEc:eme:jeaspp:v:32:y:2016:i:1:p:46-62
    DOI: 10.1108/JEAS-07-2015-0020
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    Citations

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    Cited by:

    1. Sattar Khan & Yasir Kamal & Shahid Hussain & Muhammad Abbas, 2022. "Corporate governance looking back to look forward in Pakistan: a review, synthesis and future research agenda," Future Business Journal, Springer, vol. 8(1), pages 1-32, December.
    2. Qamar uz Zaman & M. Kabir Hassan & Arshad Hafiz Muhammad, 2020. "Managerial Efficiency and Corporate Leverage Policy in Pakistan," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 16(2), pages 25-46.
    3. Kanwal Iqbal Khan & Faisal Qadeer & Mário Nuno Mata & Rui Miguel Dantas & João Xavier Rita & Jéssica Nunes Martins, 2021. "Debt Market Trends and Predictors of Specialization: An Analysis of Pakistani Corporate Sector," JRFM, MDPI, vol. 14(5), pages 1-16, May.
    4. Kanwal Iqbal Khan & Faisal Qadeer & Mário Nuno Mata & José Chavaglia Neto & Qurat ul An Sabir & Jéssica Nunes Martins & José António Filipe, 2021. "Core Predictors of Debt Specialization: A New Insight to Optimal Capital Structure," Mathematics, MDPI, vol. 9(9), pages 1-25, April.

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