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Are Growth Led Financing Decisions Causing Insolvency in Listed Firms of Pakistan?

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  • Rana Yassir Hussain Xuezhou Wen Rehan Sohail Butt Haroon Hussain Sikandar Ali Qalati Irfan Abbas

    (Jiangsu University Zhenjiang, Jiangsu China. School of Management, Jiangsu University / School of Business, Jiangnan University, Jiangsu Province, China. School of Management Jiangsu University, Jiangsu China. Noon Business School, University of Sargodha, Pakistan. School of Management Jiangsu University, Jiangsu China. Key Laboratory of Modern Agriculture Equipment & Technology, Ministry of Education, Jiangsu University, Jiangsu China.)

Abstract

We examine the relationship between growth opportunities and insolvency risk in a mediating framework through financing decisions for 330 listed firms on the Pakistan Stock Exchange (PSX) This study covers a data period of five years ranging from 2013 to 2017. Financing decisions used in this study involve capital structure decision and debt maturity decision. We applied robust clustered panel OLS regression to the data and found a negative relationship between growth opportunities and insolvency risk in all samples consisting of overall, large and small firms. Growth opportunities have a negative impact on the capital structure, but debt maturity was influenced positively. Financing decisions influenced the insolvency risk positively. We used Baron and Kenny’s (1986) approach to detect the intervening effects of financing decisions. Further, Sobel’s test used to check the significance of mediation. Partial mediation was found for the debt maturity ratio in the large and overall sample of firms. However, the capital structure did not mediate the relationship between growth opportunities and insolvency risk in this study. JEL Classification: G30, G32

Suggested Citation

  • Rana Yassir Hussain Xuezhou Wen Rehan Sohail Butt Haroon Hussain Sikandar Ali Qalati Irfan Abbas, 2020. "Are Growth Led Financing Decisions Causing Insolvency in Listed Firms of Pakistan?," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 23(2), pages 89-115, November.
    • Handle: RePEc:zag:zirebs:v:23:y:2020:i:2:p:89-115
    DOI: 10.2478/zireb-2020-0015
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    More about this item

    Keywords

    Growth Opportunities; Financing Decisions; Insolvency Risk;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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