Determinants of capital structure
Purpose - The aim of this empirical study is to explore the factors that affect the capital structure of manufacturing firms and to investigate whether the capital structure models derived from Western settings provide convincing explanations for capital structure decisions of the Pakistani firms. Design/methodology/approach - Different conditional theories of capital structure are reviewed (the trade-off theory, pecking order theory, agency theory, and theory of free cash flow) in order to formulate testable propositions concerning the determinants of capital structure of the manufacturing firms. The investigation is performed using panel data procedures for a sample of 160 firms listed on the Karachi Stock Exchange during 2003-2007. Findings - The results suggest that profitability, liquidity, earnings volatility, and tangibility (asset structure) are related negatively to the debt ratio, whereas firm size is positively linked to the debt ratio. Non-debt tax shields and growth opportunities do not appear to be significantly related to the debt ratio. The findings of this study are consistent with the predictions of the trade-off theory, pecking order theory, and agency theory which shows that capital structure models derived from Western settings does provide some help in understanding the financing behavior of firms in Pakistan. Practical implications - This study has laid some groundwork to explore the determinants of capital structure of Pakistani firms upon which a more detailed evaluation could be based. Furthermore, empirical findings should help corporate managers to make optimal capital structure decisions. Originality/value - To the authors' knowledge, this is the first study that explores the determinants of capital structure of manufacturing firms in Pakistan by employing the most recent data. Moreover, this study somehow goes to confirm that same factors affect the capital structure decisions of firms in developing countries as identified for firms in developed economies.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 37 (2011)
Issue (Month): 2 (January)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=mf Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Warner, Jerold B, 1977. "Bankruptcy Costs: Some Evidence," Journal of Finance, American Finance Association, vol. 32(2), pages 337-347, May.
- Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
- Deesomsak, Rataporn & Paudyal, Krishna & Pescetto, Gioia, 2004. "The determinants of capital structure: evidence from the Asia Pacific region," Journal of Multinational Financial Management, Elsevier, vol. 14(4-5), pages 387-405.
- Wald, John K, 1999. "How Firm Characteristics Affect Capital Structure: An International Comparison," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(2), pages 161-187, Summer.
- Sanford J. Grossman & Oliver D. Hart, 1982.
"Corporate Financial Structure and Managerial Incentives,"
in: The Economics of Information and Uncertainty, pages 107-140
National Bureau of Economic Research, Inc.
- Sanford Grossman & Oliver Hart, "undated". "Corporate Financial Structure and Managerial Incentives," Rodney L. White Center for Financial Research Working Papers 21-79, Wharton School Rodney L. White Center for Financial Research.
- DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
- Hausman, Jerry A, 1978.
"Specification Tests in Econometrics,"
Econometric Society, vol. 46(6), pages 1251-1271, November.
- Huang, Guihai & Song, Frank M., 2006. "The determinants of capital structure: Evidence from China," China Economic Review, Elsevier, vol. 17(1), pages 14-36.
- Michael J. Barclay & Clifford W. Smith, 1999. "The Capital Structure Puzzle: Another Look At The Evidence," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(1), pages 8-20.
- 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.
- Chen, Jean J., 2004. "Determinants of capital structure of Chinese-listed companies," Journal of Business Research, Elsevier, vol. 57(12), pages 1341-1351, December.
- Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
- Stiglitz, Joseph E, 1988. "Why Financial Structure Matters," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 121-126, Fall.
- Eugene F. Fama, 2002.
"Testing Trade-Off and Pecking Order Predictions About Dividends and Debt,"
Review of Financial Studies,
Society for Financial Studies, vol. 15(1), pages 1-33, March.
- Eugene F. Fama & Kenneth R. French, "undated". "Testing Tradeoff and Pecking Order Predictions about Dividends and Debt.”," CRSP working papers 506, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
- Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
- Zélia Maria Silva Serrasqueiro, 2009. "Capital structure of listed Portuguese companies," Review of Accounting and Finance, Emerald Group Publishing, vol. 8(1), pages 54-75, February.
- Guanqun Tong & Christopher Green, 2005. "Pecking order or trade-off hypothesis? Evidence on the capital structure of Chinese companies," Applied Economics, Taylor & Francis Journals, vol. 37(19), pages 2179-2189.
- Patrik Bauer, 2004. "Determinants of Capital Structure: Empirical Evidence from the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 54(1-2), pages 2-21, January.
- Marsh, Paul, 1982. " The Choice between Equity and Debt: An Empirical Study," Journal of Finance, American Finance Association, vol. 37(1), pages 121-144, March.
- repec:kap:iaecre:v:13:y:2007:i:4:p:495-514 is not listed on IDEAS
- Ferri, Michael G & Jones, Wesley H, 1979. "Determinants of Financial Structure: A New Methodological Approach," Journal of Finance, American Finance Association, vol. 34(3), pages 631-644, June.
- Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. " On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-878, July.
- Dimitrios Vasiliou, 2009. "Testing the pecking order theory: the importance of methodology," Qualitative Research in Financial Markets, Emerald Group Publishing, vol. 1(2), pages 85-96, June.
- Harris, Milton & Raviv, Artur, 1990. " Capital Structure and the Informational Role of Debt," Journal of Finance, American Finance Association, vol. 45(2), pages 321-349, June.
When requesting a correction, please mention this item's handle: RePEc:eme:mfipps:v:37:y:2011:i:2:p:117-133. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.