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Economic Factors Influencing Corporate Capital Structure in Three Asian Countries: Evidence from Japan, Malaysia and Pakistan

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  • Mahmud, Muhammad
  • Herani, Gobind M.
  • Rajar, A.W.
  • Farooqi, Wahid

Abstract

This study is an attempt to determine the factors that influence a firm’s choice of capital structure in three Asian countries: Japan, Malaysia and Pakistan. The specific objective is to investigate if country’s economic factors play a significant role in determining capital structure between markets. These countries are chosen in order to represent three different stages of economic development. Literature review reveals that considerable research has been made in the industrialized countries on the similar topic. Capital structure is one of the most complex areas of strategic financial decision making due to its interrelationship with macroeconomic variables. This study reveals that per capita GNP growth for Japan and Malaysia is significantly related to capital structure of firm and higher economic growth tends to cause to use more long term debt. These results for Pakistan are different from those other two countries. This also shows that inefficiencies coupled with high leverage may entangle Pakistani firms in debt trap. The indicator of prime lending rate is the most decisive factor affecting demand for credit for Japan and Malaysia. It is evident from the analysis that financial liberalization provides major support in the development of capital structure and overall corporate sector in all the three countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15003.

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Date of creation: 20 Apr 2009
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Handle: RePEc:pra:mprapa:15003

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Keywords: Capital Structure; Business Cycle; Liquidity; Economic Growth;

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  1. Chen-Chen Yong & Kim-Lan Siah & Pei-Lee Teh & Keng-Boon Ool, 2008. "Time Series Analysis on Factors Influencing Saving Rate in Malaysia," The IUP Journal of Financial Economics, IUP Publications, vol. 0(4), pages 50-61, December.
  2. Bernhardsen, Tom & Eitrheim, Oyvind & Jore, Anne Sofie & Roisland, Oistein, 2005. "Real-time data for Norway: Challenges for monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 333-349, December.
  3. Booth, L. & Asli Demirgu-Kunt, V.A. & Maksimovic, V., 1999. "Capital Structure in Developing Countries," Rotman School of Management - Finance 00-001, Rotman School of Management, University of Toronto.
  4. Friedman, Milton, 1972. "Have Monetary Policies Failed?," American Economic Review, American Economic Association, vol. 62(2), pages 11-18, May.
  5. Muhammad Mahmud, 2003. "The Relationship between Economic Growth and Capital Structure of Listed Companies: Evidence of Japan, Malaysia, and Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 42(4), pages 727-750.
  6. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
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