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

  • Muhammad Mahmud
  • Gobind M. Herani

    ()

    (Indus Institute of Higher Education (IIHE), Karachi, Pakistan.)

  • Prof. A. W. Rajar

    (University of Sindh, Jamshoro.)

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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File URL: http://indus.edu.pk/RePEc/iih/journl/2-EconomicFactorsInfluencingCorporateCapitalStructureinThreeAsianCountries.pdf
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Article provided by Department of Business Administration in its journal Indus Journal of Management & Social Science (IJMSS).

Volume (Year): 3 (2009)
Issue (Month): 1 (June)
Pages: 9-17

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Handle: RePEc:iih:journl:v:3:y:2009:i:1:p:9-17
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  1. Pfaffermayr, Michael & Stoeckl, Matthias & Winner, Hannes, 2009. "Capital structure, corporate taxation and firm age," Working Papers in Economics and Finance 2009-4, University of Salzburg.
  2. Bernhardsen, Tom & Eitrheim, Øyvind & Jore, Anne Sofie & Røisland, Øistein, 2004. "Real-time Data for Norway: Challenges for Monetary Policy," Discussion Paper Series 1: Economic Studies 2004,26, Deutsche Bundesbank, Research Centre.
  3. 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.
  4. 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.
  5. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
  6. Laurence Booth, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, 02.
  7. Friedman, Milton, 1972. "Have Monetary Policies Failed?," American Economic Review, American Economic Association, vol. 62(2), pages 11-18, May.
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